What's your best hedge against war and mayhem? Here's a hint: It's also the cheapest sector in the S&P 500.

Energy stocks are trading at just 13.8 times their expected earnings over the next 12 months, a level that Nick Colas of DataTrek Research attributes to the sector's reliance on commodity prices. We get it -- investors want to own companies that are growing earnings thanks to their robust businesses, not those that take market prices for the goo they find underground. But with rising crude prices one of the most salient risks to the market right now, that exposure to oil prices isn't really such a bad thing.

The diversification value is real. Of the five sectors that have zero or negative correlations to the S&P 500 -- healthcare and real estate among them -- energy is by far the most negative, at minus 0.4 over the past five months.

But Colas views these stocks as more than just a hedge. "High-dividend payouts show that these companies have capital discipline," he says. "It will no doubt take time, but these stocks can earn their way to higher valuations if their earnings and capital discipline remains solid."

These stocks could also provide "a breath of fresh air" for investors who are tiring of the artificial-intelligence stocks, Colas says. "If you're scouting around for a group that respects your capital and doesn't put it into science projects, this is it."

It will get a chance to show it when the King Kong of the bunch, Exxon Mobil, releases earnings next Friday. Perhaps its report will serve as a reminder of how valuable energy stocks can be.

And not just in times of madness and mayhem.

Write to Alex Rosenberg at alex.rosenberg@barrons.com

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(END) Dow Jones Newswires

July 24, 2026 21:31 ET (01:31 GMT)

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