By Teresa Rivas

As Kermit the Frog told us, it's not easy being green. Turns out it's not easy being not-green, either.

Despite all of the Trump administration's pro-fossil fuel rhetoric, traditional energy hasn't done well this year. The Energy Select Sector SPDR exchange-traded fund is up roughly 3.3% in 2025; it's the third worst-performing sector year to date and trails the S&P 500's nearly 6% gain. (It's also lagging behind some green ETFs, such as like the Global X CleanTech ETF and the Invesco WilderHill Clean Energy ETF.)

That said, there's still opportunity in energy, argues Ben Cook, portfolio manager of the Hennessy Midstream Fund and the Hennessy Energy Transition Fund.

"Energy in general is just too cheap," he says, noting that the Energy Select Sector SPDR ETF trades at just over seven times enterprise value to Ebitda, or earnings before interest, taxes, depreciation, and amortization. That is half the S&P 500's EV to Ebitda valuation.

Moreover, energy generates roughly twice the free cash flow of the index, he says. The sector as a whole has gotten much more disciplined in terms of having ample cash on hand -- and Cook believes it's more committed to shareholder returns right now than at any point in recent history.

Cook does think that the price of oil will continue to languish this year, given the increased output of the Organization of the Petroleum Exporting Countries. He also cites the fact that the sector is seeing the first decrease in exploration and production spending globally since 2020, but that things may brighten in 2026.

By contrast, natural gas demand remains strong. Not only is energy-hungry artificial intelligence boosting its price, but Cook believes it could also be a beneficiary of the current trade talks. Countries such as Japan or South Korea, which already import American liquefied natural gas, could easily agree to take more as part of tariff negotiations, he says.

As for specific stocks, Cook notes that Exxon Mobil is so well-diversified it can win in nearly any energy environment. "With an expectation to generate as much as $110 billion in free cash flow even at prices as low as $55 per barrel, we fully expect to see Exxon buyback approximately $20 billion in shares a year over the next five years," he says. "That means that they (could potentially) repurchase roughly 20% of their market cap."

He also likes Kinder Morgan -- a recent Barron's stock pick -- and fellow pipeline operator Williams Cos. Both companies benefit from AI demand and have transportation networks that are hard for rivals to replicate.

Natural gas's strength should also help Expand Energy Corp. -- a merger between the former Chesapeake Energy and Southwest Energy -- given its assets in well-positioned geographies that are powering AI, as well.

In all, energy hasn't performed the way many bulls hoped it would under Trump 2.0, but the sector still offers opportunities for those willing to do some digging -- or drilling.

Write to Teresa Rivas at teresa.rivas@barrons.com

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July 10, 2025 01:00 ET (05:00 GMT)

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