These companies are expected to grow the fastest in the low-cost energy sector of the S&P 500 Index

(Updated with Wednesday’s announcement of ConocoPhillips’ acquisition of Marathon Oil Corp.)

Energy stocks as a group are trading cheaply relative to expected earnings, even though the sector has been by far the best performer in the S&P 500 over the past three years.

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A month ago, we looked at all 23 S&P 500 SPX energy stocks to see which ones had the highest returns on invested capital over the past three years. This analysis is still useful, although we currently have 22 stocks in the sector because Exxon Mobil Corp. On May 3, XOM completed the acquisition of Pioneer Pioneer Natural Resources Co. There are two more S&P 500 companies waiting for acquisition in the energy sector. On Wednesday, ConocoPhillips COP agreed to acquire Marathon Oil Corp. MRO in a deal that may be the last of the major consolidations of U.S. oil producers in this wave of consolidation. In October, Hess Corp. HES has agreed to be acquired by Chevron Corp. CVX in an all-stock deal then valued at $53 billion.

Sector valuations and expected growth rates

Before we look at individual stocks, let’s take a look at the weighted stock valuation, performance and estimates for the 11 sectors of the S&P 500 Index.

Here are the current forward price-to-earnings and year-ago valuations, based on trailing 12-month earnings per share estimates, along with total dividend reinvested returns for the sectors, in alphabetical order with the full index at: bottom:

The energy sector is by far the cheapest of the 11 sectors on the S&P 500 index, despite having the highest three-year total return. However, it delivered the worst return in 10 years, which was due not only to the collapse in oil prices from mid-2014 to early 2016, but also to investors’ reluctance to borrow from the sector again.

The story continues

For long-term investors, it may still be a good time to consider the energy sector, according to Clare Hart, lead manager of the JPMorgan Equity Income Fund. In an interview with Barbara Kollmeyer, Hart stated that she is “pretty optimistic” about the energy sector, partly due to the opportunity presented by investors divesting from fossil fuels. Her fund holds shares of ConocoPhillips COP, Chevron and Exxon Mobil, which she says are examples of companies worth owning as they become more efficient and “environmentally friendly.”

Last week, Sandip Bhagat, chief investment officer at Whittier Trust in Pasadena, California, included energy among a group of “neglected sectors” (which also includes industrials, materials and financials) that he expected “will play a larger role in the next five years” years more than in the last five years”. With regard to energy in particular, he takes comfort in the fact that companies are “significantly less indebted than in the past.”

However, the relatively low valuation of the energy sector may also be influenced by subdued growth expectations over the next two years. Here are the expected weighted compound annual growth rates for revenue, earnings and free cash flow per share, based on a 2024 baseline, based on the consensus among analysts surveyed by FactSet:

A company’s free cash flow is the cash flow left after capital expenditures. This is money that can be used for dividend payments, stock repurchases, fund acquisitions, or other corporate purposes.

To read: Over the course of a decade, Apple spent $645 billion on buybacks. These companies were even more effective.

Therefore, the cheapest sector on forward P/E is expected to be the only one to show a decline in revenues over the next two years. The energy sector has the second-lowest expected earnings per share growth rate and the second-lowest expected rate of free cash flow.

Expected growth rates for S&P 500 energy stocks

One way to invest in the entire S&P 500 index is the Energy Select SPDR ETF XLE, which includes all 22 stocks in the sector, weighted by market capitalization. This means that Exxon Mobil accounts for over 26% of the portfolio, and the three largest holdings (Chevron and ConocoPhillips) have a share of 52%.

Let’s now take a look at the growth rate estimates of 22 companies from the S&P 500 energy sector. The companies are ranked by market capitalization, and the table also includes forward P/E ratios and those from a year ago:

For three of the companies, consensus free cash flow estimates for 2026 are not yet available. For Hess, FCF per share is expected to grow 34% in 2025 compared to the level expected in 2024 if the acquisition by Chevron will not be finalized.

In the case of Diamondback Energy Inc. FANG analysts expect FCF per share to decline 39% in 2025. In February, the company agreed to acquire Endeavor Energy Resources LP for about $26 billion, mostly in stock. The increase in the number of shares is expected to reduce FCF per share.

In the case of Devon Energy Corp. DVN analysts expect FCF to grow by 19% in 2025.

Here’s the list again in the same order, with forward dividend yields, P/E ratios and a summary of analyst opinions:

Click on the tags for more information about each company.

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Dividend rates are variable and some distributions are variable. Before you buy any individual security, be sure to do your own research to form your own opinion on the long-term viability of the company.

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