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Energy stocks are the best bet in the market right now, says JPMorgan

JPMorgan is once again pounding the table on energy stocks . The sector has been JPMorgan’s highest-conviction overweight since late 2020, and following the recent and sharp pullback the firm said now’s the time to buy. “Energy stocks offer the most attractive risk/reward opportunity within equities…especially after the recent sharp correction,” Dubravko Lakos, chief U.S. equity strategist and global head of quantitative research, said Friday in a note to clients. “Energy is a deep value sector that is simultaneously improving on Quality, Growth and Income factors (a rare combination),” he added. Energy stocks have faced significant weakness in recent weeks, and the group is now in bear market territory, down 22% from the recent high on June 8. The downturn comes amid broad-based selling in the market as recession fears weigh. Energy is still the only positive sector for the year — up 29% — meaning investors could also be selling a winning trade in order to cover losses faced elsewhere. “The sector’s strong fundamentals remain anchored by rising revenues…The sector’s strong fundamentals remain anchored by rising revenues,” the firm added. JPMorgan also looked at the impact on energy stocks during prior recessions, overall finding that since 1965 demand growth has only been negative in 10 years. During recessions specifically, demand slowdown was limited. “These supply and demand dynamics should continue to support elevated oil and gas prices, making the Energy sector at current very low valuations extremely attractive,” Lakos said. The firm said that energy, equipment and services companies look especially attractive since the group should be “the largest beneficiary of increasing production as policy pivots towards energy independence from highly costly and restrictive ESG policies.” Despite energy equities’ run this year, the sector remains under-owned due, in part, to ESG concerns. JPMorgan believes that ESG-focused investors might start to reevaluate their frameworks due to underperformance, which could prompt buying in oil and gas stocks. The firm has overweight ratings on shares of Exxon and Marathon Oil , among others. – CNBC’s Michael Bloom contributed reporting.

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