MW These energy stocks are especially cheap when you consider how expensive oil has become
By Philip van Doorn
A group of oil-related stocks is 'trading 30% below where its historic relationship with oil implies,' according to BofA analyst Jill Carey
Stocks of small-cap U.S. oil and natural-gas producers have risen more slowly than large-cap energy stocks during 2026.
Among equity analysts, a "rerating" is when the stock market catches up to an underlying trend. Energy stocks had started to increase before the attack against Iran by the U.S. and Israel caused oil prices to soar. But some energy stocks have been left behind.
Continuous front-month contracts for West Texas Intermediate crude oil (CL00) were trading for $115.33 a barrel early on Tuesday, nearly doubling the price of $57.42 at the end of 2025.
Through Monday, the State Street Energy Select Sector SPDR ETF XLE had returned 41.6% for 2026 with dividends reinvested. XLE tracks the energy sector of the S&P 500 by holding all 22 of its stocks.
Meanwhile, the Invesco S&P SmallCap Energy ETF PSCE had returned 34.3% for 2026. This exchange-traded fund tracks the S&P SmallCap 600 Capped Energy Index, which is made up of the 31 stocks in the energy sector of the S&P Small Cap 600 Index SML, weighted by market capitalization, with a limit of 22.5% for any one company. In addition, stocks making up 4.5% or more of the index are limited to a total of 45% of the index.
XLE trades at a forward price/earnings ratio of 17.6, as calculated by LSEG based on weightings within the portfolio, while PSCE trades at a forward P/E of 14.1.
Maybe it is not a surprise to see that smaller players trade at lower P/E valuations in an industry dominated by giant companies.
But BofA Securities analyst Jill Carey believes small-cap energy stocks are "poised for re-rating." In a note to clients on Monday, Carey wrote that the small-cap energy sector was "trading 30% below where its historic relationship with oil implies (or, discounting $70-75 oil)."
With attacks by Iran on neighboring countries causing some long-term damage to energy production and export facilities, oil prices ranging between $70 and $75 a barrel might be a tall order even after the fighting in the Middle East ends.
This is where your own opinion as an investor comes into play. Is the market "getting it right" when pricing small-cap energy stocks to oil ranging from $70 to $75 a barrel? Or will prices remain elevated above that range for years?
Screening small-cap energy stocks
Starting with the 31 stocks held by the Invesco S&P SmallCap Energy ETF, we narrowed the list to 22 companies that were profitable in 2025, when oil prices were so much lower than they are now. Then we cut the list further to 18 companies expected to show profits over the next 12 months and are covered by at least five analysts polled by LSEG.
Here are the 10 remaining stocks with the lowest forward P/E ratios:
Company Forward P/E My dividend yield SM Energy 5.0 2.89% Crescent Energy 7.2 3.56% Northern Oil & Gas 7.6 6.32% Dorian LPG 8.8 0.00% Magnolia Oil & Gas 10.2 2.12% Par Pacific Holdings 12.2 0.00% International Seaways 13.9 0.63% Cactus 16.0 1.13% California Resources 16.5 2.39% Archrock 17.4 2.52% Source: FactSet
A stock screen is based on a limited number of data points and should be used as part of your own investment research. One way to get more information is to click on the tickers for more about each company, fund or index.
Read: Tomi Kilgore's guide to the information available on the MarketWatch quote page
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-Philip van Doorn
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April 07, 2026 11:08 ET (15:08 GMT)
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