When one part of the market is hot, some names can soar far higher. But some companies may not go along for the ride. That can create a valuation mismatch, which may allow investors to earn a decent profit as overpriced companies in the sector see a relative decline.
In the past year, only one sector has seen a strong move higher. That space is the energy sector. And it’s not entirely played out yet.
Many energy stocks saw high-double or low-triple-digit gains in 2022. However, many big European oil majors did not. That’s created a relative value play for investors. For instance, Shell (SHEL) is up just 17 percent over the past year, even with revenues up 60 percent.
That’s created an opportunity, as shares trade for about 5 times earnings. That’s notably less expensive than US oil majors, which trade closer to 8-10 times earnings at present.
Action to take: Investors may like shares right now on further upside potential in the year ahead. Plus, the company yields 3.5 percent right now, and shares are still a bit off their recent highs.
For traders, the July $60 calls are a near-the-money trade. Last going for about $3.60, they can likely deliver mid-double-digit growth on a further move higher in shares in the first half of the year.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.