Energy Stocks Outperform Market Despite Wall Street Skepticism

Despite recent gains, Wall Street analysts continue to label energy stocks as laggards. On CNBC, Michael Cuggino, president of Permanent Portfolio Family of Funds, argued that energy stocks have not kept up with the broader market, recommending Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) as cheap total-return plays. However, performance data tells a different story. As of October 2, Exxon is up over 34% in the past year, while Chevron has risen nearly 33%. In comparison, the S&P 500 gained less than 13% over the same period.

Cuggino’s valuation case holds up with some adjustments. He noted that both stocks trade at about 13 times next year’s earnings, with dividend yields of 3.5% and 2.5% for Chevron and Exxon, respectively. However, checked against consensus 2027 EPS, both stocks trade closer to 15x. Their current yields are 3.42% and 2.53%. Jim Cramer also highlighted Chevron’s 3.44% yield, which usually doesn’t move with the rest of the market.

Rising earnings estimates have driven the rally. Chevron’s second quarter reported adjusted EPS of $6.06, revenue up 51.4% to $67.20B, and free cash flow of $18.1 billion. Exxon CEO Darren Woods described a quarter with more than $14 billion of earnings and $17 billion of free cash flow. Additionally, Chevron signed a 20-year power purchase agreement with Microsoft (NASDAQ:MSFT), covering 2.67 gigawatts of capacity for a West Texas data center complex.

A slide in crude oil prices could undercut the bullish case. WTI peaked at $102.13 in May and fell to $83.9 by August. The EIA forecast Brent averaging $79.39 in 2027, which could shrink estimates and make today’s 15x multiple less attractive. Analysts are split, with Chevron receiving 20 Buy ratings or Strong Buy ratings, while Exxon has 15 Hold ratings.