The Breakfast Briefing Bolstered by a surge in global crude prices, oil and gas companies have taken over as the U.S. stock market's priciest segment. The U.S. energy sector is trading at a ratio of 19.7 times expected earnings over the next year, according to a report this week from Credit Suisse. That's above the tech sector’s rate of 17.9 times earnings and the S&P 500's rate of 16.3 times earnings. Energy stocks have surged lately alongside rising crude prices. The price of a barrel of crude is now approaching $70 a barrel, a level not seen since 2014, as major oil exporters hold back production and geopolitical tensions have threatened supply. U.S. crude is up 5.2% this month, ending Thursday at $68.29 a barrel. Energy companies, whose share prices were depressed by a multi-year slide in oil prices, are now among the market’s best performers as investors anticipate higher oil prices will bolster their revenue and profits. Shares of Baker Hughes have rallied 21% this month through Thursday, while Occidental Petroleum shares are up 17% and Valero Energy shares are up 16%. The S&P, meanwhile, is up 2%. The stock gains have helped drive the energy sector’s valuation up by nearly a full percentage point since mid-March, according to Credit Suisse data, putting it ahead of the consumer discretionary and tech sectors that it trailed in March. Valuations for those sectors, which encompass highflying companies such as Amazon.com Inc. and Facebook Inc., have eased recently amid market volatility and a rout in technology stocks since Facebook disclosed a user-data breach last month. Credit Suisse notes that while energy valuations are elevated compared to the broader market, they have fallen significantly compared to a few years ago, when companies were posting steep losses because of the crude-price decline. "A combination of strong fundamentals and weaker stock prices has made the sector’s valuations more attractive than they have been in several years," analysts wrote. Where do you see value in the market? Let the author know your thoughts at chelsey.dulaney@wsj.com. |