Trying to find performing stocks in 2022 is akin to attempting to clean a saucepan after overcooking rice so badly that it sticks to the bottom (this may or may not have happened to me during dinner a few nights ago) – in other words, it’s very difficult.

But if you look really, really hard, you will uncover a few. Most of which are in the energy sector. In fact, the Stoxx 600 Oil and Gas Index is up 20% (despite a recent pullback), as shown on the below chart, while the wider market has slumped.

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Investor gains in the energy sector are due to the tragic war in Ukraine, which has driven commodity prices through the roof.

However, there is something extremely notable about this rise in the price of energy stocks – it is dwarfed by the rise in forecasted earnings. Despite stocks rising 20%, earnings estimates have risen 64%. This has served to drop the P/E ratio from 8.5 at the start of the year to where it currently sits at 6.4. As the below graph from shows, this means energy stocks are trading at their lowest valuations since the great financial crash in 2008.

This suggests that the market is not fully on board with soaring analyst expectations. It serves as a symbol of the growing bearish sentiment circulating, with investors apparently expecting slowing economic growth to pull demand for oil and gas down and ultimately justify these lower multiples.

Another issue is the question of how sustainable the rally in commodity prices is. This is obviously driven by the black swan event of a war in Europe and all the knock-on effects, including sanctions levelled by the West. It’s a fool’s game to try and forecast Putin’s future moves, and there is also the continued debate over the West’s response and how obliged or willing they are to shut off the energy flow, all of which could impact valuations here severely.

Taking all this into account – not to mention the soaring dollar that could throw a further spanner in the works – and it makes perfect sense that valuations have dipped. With the meltdown across nearly every asset in the financial sphere, the bearish sentiment is manifesting itself even in the very few stocks that are performing, i.e. energy, in the form of lower valuations – and that makes perfect sense, a trend which happens again and again in aggressive risk-off periods.

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