Does the Energy Sector Offer Undervalued Stocks?

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.
Sempra Energy

The energy sector has been beaten down for years compared to the rest of the market.

Investors looking for a way to jump in at a time when it could be undervalued may wish to consider an exchange-traded fund (ETF) such as Vanguard Energy ETF (VDE).

This fund invests in a broad swath of U.S. energy companies, so it provides a less risky way to invest in the whole sector, compared to guessing about the future of a single company. The fund includes all types of oil and gas companies, including producers, refiners, transporters and equipment makers, as well as integrated companies that do several of these.

VDE is a Vanguard ETF, so it lives up to investor expectations for that fund company to offer low expense ratios compared to its rivals. Indeed, its expense ratio is just 0.10%. It always is nice to avoid paying a heavy premium for your basket of stocks. Net assets for the fund total about $3.7 billion.

As previously noted, the recent performance of the energy sector has been nothing too exciting, as the chart below shows. Over the last year, VDE is down 4.58%, and increasing the time horizon does not improve that number. On the plus side, energy companies tend to pay dividends, and VDE offers a current dividend yield of 3.41%.

Top holdings for this fund include Exxon Mobil Corp. (NYSE:XOM), 22.79%; Chevron Corp. (NYSE:CVX), 18.19%; ConocoPhillips (NYSE:COP), 4.80%; Phillips 66 (NYSE:PSX), 4.25%; and Schlumberger Ltd. (NYSE:SLB), 4.10%. Among all the fund’s holdings, 69.48% of its assets are invested in the top 10 positions. Overall, the fund has 140 total holdings.

If you think now is the time for a turnaround in energy stocks, especially due to increased conflicts and tensions in the Middle East, consider adding a fund like Vanguard Energy ETF (VDE) to your portfolio.

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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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