Apple Versus the Energy Sector: Which Is the Better Buy?

  • Apple (AAPL) launched a bunch of new products on Jun. 6.
  • While the company is doing fine, AAPL stock is not, down over 15% in 2022. 
  • With this decline, the energy sector could be the better bet. 
AAPL Stock - Apple Versus the Energy Sector: Which Is the Better Buy?

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On Jun. 6, Apple (NASDAQ:AAPL) held its Worldwide Developers Conference. The company introduced new versions of the MacBook laptop and several other interesting products. Despite the excitement these announcements always create, AAPL stock gained less than 1% on the day. 

The reality is that tech isn’t on the minds of buyers at the moment. That award goes to the energy sector. Gas prices over $5 will do that. 

Interestingly, Apple has a 6.5% weighting in the S&P 500, 170 basis points higher than the entire energy sector. At this point, Apple’s share price is trending lower. Meanwhile, the Energy Select Sector SPDR Fund (NYSEARCA:XLE) is up 64.8% year-to-date (YTD). 

For now, energy stocks and exchange-traded funds (ETFs) remain the safer play. Here’s why.    

Ticker Company Price
AAPL Apple Inc. $148.15

AAPL Stock Trades at 22x Forward Earnings

Apple’s average 2023 earnings per share estimate is $6.58. That’s 22.2x its 2023 earnings. If you go by the median 12-month target price of $190, analysts expect its trailing price-to-earnings (P/E) multiple to be closer to 29x next year. That compares to a trailing P/E ratio of just less than 24x today. 

Even though it’s expensive, analysts seem to be saying that investors will continue to pay for quality. That makes sense. 

In the meantime, the 21 stocks in XLE have an average trailing 12-month P/E ratio of 17.3 and a forward P/E of 10.3, less than half Apple’s forward P/E. That doesn’t make sense.

According to FactSet, energy stocks had an earnings growth rate of 268% in Q1 2022, 6.4x higher than the materials sector, the second-highest sector for earnings growth. Despite a ton of money flowing into the energy sector, a company like Exxon Mobil (NYSE:XOM) still only trades at 10x its forward earnings. With XLE yielding 2.6% at the moment, you’re getting growth and income at a fraction of what you would pay for Apple.

Two Possible Ways to Play This

I’m the last person to suggest energy stocks are the way to go. I have been pessimistic about the oil and gas industry for many years. However, if the task at hand is getting blood from a stone — an apt description of the current equities markets — then XLE and the stocks held within this ETF are a smart bet right now. 

Yes, you’ve missed substantial gains — XLE had a total return of 53.3% in 2021 and 62.6% YTD with dividends included. However, given that stocks like XOM are trading at half their five-year average P/E, I would be hard-pressed to come up with a single argument against betting on energy stocks through the remainder of 2022 and into 2023.

So, if you were thinking about placing a $5,000 bet on Apple, maybe you could put half of that into XLE and the remainder into AAPL stock. That’s one way to play this. 

A second way is to buy Berkshire Hathaway (NYSE:BRK-B). It owns 911.3 million shares of Apple, accounting for 39% of Berkshire’s $346 billion equity portfolio. In addition, Chevron (NYSE:CVX) is Berkshire’s third-largest holding, while Occidental Petroleum (NYSE:OXY) is the holding company’s seventh-largest position.

The Bottom Line on AAPL Stock

If you add 83.86 million warrants, Berkshire has to buy OXY stock at $59.62 a share. Warren Buffett owns or controls 21.6% of the oil and gas producer. It’s also a top 10 holding of XLE.

Based on its current share price at the time of writing of $69.87, Berkshire’s OXY holdings would be worth $15.38 billion, which would vault it into the sixth spot, ahead of Kraft Heinz (NASDAQ:KHC).

Either of my two suggestions makes sense at the present time. If you’re a risk-averse investor, I’d go for the Berkshire option. On the other hand, if you’re okay with a bit of risk, I’d consider doing the 50/50 AAPL/XLE split. 

Only aggressive investors ought to consider Apple stock at this point in the proceedings. I’m not sure we’ve seen the bottom just yet. Long-term, Apple remains a good core holding.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


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