Investors still love Cathie Wood, but hate the best-performing sector of the year

Market Trading EssentialsMay 21, 2022

2 minutes read

The bloodbath in the markets this past week wrecked retail stocks, as Walmart (WMT) posted its worst week ever, falling 20%.

Amid the carnage, investors piled into beaten-down names like the Ark Innovation ETF (ARKK) while shunning the best performing sector of the year. The energy sector’s stunning 47% return this year stems from soaring oil and gas prices, as WTI crude oil futures (CL=F) surged 56% this year.

Still, investors have yanked $705 billion from the iShares U.S. Energy ETF (XLE) — the world’s largest such fund — which roughly mirrors the $730 billion investors put to work in Cathie Wood’s flagship disruption fund, which is down 55% in 2022.

Early last week, Saudi Aramco (2222.SR) — now the world’s most valuable public company ahead of Apple (AAPL) — reported a record quarterly profit of $39.5 billion.

We also learned Warren Buffett plowed another $25.9 billion into Chevron (CVX) and $7.74 billion into Occidental Petroleum (OXY) during the first quarter — making Chevron his #4 holding. Shares of Buffett’s Berkshire Hathaway (BRK-B) have avoided the market selloff, and are roughly flat on the year.

At a recent Yahoo Finance Plus webinar, Callie Cox, eToro USA investment analyst, broke down the fundamentals of the U.S. energy sector that have driven this outperformance.

“[E]nergy is a bit of a wild card right now,” Cox said, noting the geopolitical concerns stemming from the Russia-Ukraine war. “It’s a very political sector at the moment,” Cox added, noting the massive restructuring of the European energy market away from Russian sources.

Despite energy companies’ outsized performance this year, valuation metrics — like the price-to-earnings ratio — are still low. That’s after having been battered and bruised for years until relatively recently.

For example, Occidental sports a PE ratio of around 9 and is up over 115% this year, while Exxon Mobil (XOM) is a tad more expensive, trading at 15 times next year’s earnings. The constituents of the XLE collectively carry PE multiple of just 4.3, according to Yahoo Finance data.

Energy companies generally benefit from higher oil prices, so investors could theoretically punt a long or add more exposure to the sector, notes Cox. But Cox remains a bit skittish due to the Ukraine war — which could affect the supply side upon resolution. “It makes me a little hesitant,” Cox said.

Jared Blikre is a reporter focused on the markets on Yahoo Finance Live. Follow him @SPYJared.