In an article for Reuters, David Randall  discusses the outlook for the energy sector in the second-half of the year, and why some contrarian investors are betting on a rebound. In the first-half of the year, energy underperformed the broader market despite economic growth performing better than expected, while OPEC countries embarked on supply cuts.

The major headwind for oil has been weak demand from Europe and China, resulting in oil prices that are down 10% YTD. Despite expectations of continued rate hikes in the coming months, many investors are increasing exposure to energy stocks due to attractive valuations and expectations of a pickup in economic growth. 

Supply cuts from OPEC should also support the market especially as domestic US production has also been trending lower in recent months, reaching their lowest levels since April of last year. 

On a valuation basis, the sector is quite cheap relative to the broader market with a cumulative forward price to earnings ratio of 10.4, while the S&P 500 has a forward price to earnings ratio of 19. The energy sector also pays a better yield at 3.9% vs 1.5%.

Finsum: Energy stocks underperformed in the first-half of the year following a strong 2022. Here’s why some are betting on a rebound in the second-half of the year.