Does the Energy Sector Offer Undervalued Stocks?

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.

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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.

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.