Energy stocks are still underappreciated as the best equity investment right now amid soaring commodity prices and slowing supply, JPMorgan says

There is still room for more upside in energy stocks despite the massive gains in the year to date, according to a note from JP Morgan.

The bank said that the energy sector is its most conviction investment as commodity prices continue to rise and the underlying fundamentals of companies improve. According to the bank, a combination of rapid earnings growth and re-ratings for key multiples will help drive further upside in the sector.

According to Dubravko Lakos-Bujas of JP Morgan, energy is the only sector that is seeing quality, growth, and momentum scores improve simultaneously while maintaining an attractive value and income profile.

Lakos-Bujas said that the supply-demand balance is tilted in favor of improving demand with higher commodity prices.

The bank estimates that energy demand will exceed supply by 20% by the year 2030.

Lakos-Bujas said that energy stocks are far from pricing in strong and sustainable outlooks for shareholder returns.

Energy is the cheapest sector based on forward earnings and book value, according to a report. The sector is up 38% year-to-date, after it rallied 53% in 2021. The sector trades at less than its long-term average multiple.

In our view, fundamentals and valuation make a compelling case for the sector and we expect dips to be bought from broadening investor base including energy companies.