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ETF Specialist

Scouring S&P 500 Sectors For Bargains

The energy sector looks to be the last pocket of value in a fairly priced market.

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As the S&P 500 continues to notch fresh all-time highs, investors' bullishness has ebbed. Stock market valuations look fair at best--and, in some corners, stretched. According to our equity analysts, the S&P 500 looks fairly valued at present, as indicated by our current price/fair value estimate for  SPDR S&P 500 (SPY), which stands at 0.99.

However, looking one layer deeper reveals a potential opportunity in the energy sector. In the table below, I've looked at valuations across each of the nine sectors of the S&P 500, as represented by the Select Sector SPDRs that track the relevant sector benchmarks. Based on this snapshot--which includes our analysts' fair value estimates and current and historical average yields, price/book value ratios, and price/earnings ratios--most sectors appear to be either fairly or modestly overvalued at present. However, the late-2014 downdraft in oil prices appears to have created a potential opportunity in the energy sector. Below, my colleague John Gabriel shines a spotlight on the largest and most-liquid ETF tracking the sector,  Energy Select Sector SPDR (XLE).

Ben Johnson has a position in the following securities mentioned above: VOO. Find out about Morningstar’s editorial policies.