Energy Sector Shines in 2025: 2 Stocks Leading the Charge

Key Points

• The energy sector surged in early 2025, with the popular energy ETF XLE gaining 8.07% year-to-date, far exceeding the S&P 500's 1.39% increase.
• Rising oil prices, geopolitical tensions, and U.S. policies favoring fossil fuel investments have bolstered the sector’s performance.
•  Chevron and Devon Energy have emerged as relative strength standouts, gaining 9.3% and 17.5% YTD.

The energy sector has started 2025 with remarkable momentum, significantly outpacing the broader market. This impressive performance is reflected in the Energy Select Sector SPDR Fund NYSEARCA: XLE, which has gained 8.07% year-to-date as of January 16, far exceeding the S&P 500’s modest 1.39% rise. The sector's strength is underpinned by multiple factors, including rising oil prices, geopolitical tensions, and favorable policy developments.

Energy Sector's Outperformance in 2025

The energy sector’s early success in 2025 is driven by a mix of market dynamics and macroeconomic factors. Geopolitical tensions and expected sanctions, particularly disruptions in key oil-producing regions, have pushed Brent crude prices up by over 5% in the year’s first two weeks. This rally has bolstered energy stocks closely tied to oil price movements.

Additionally, demand expectations remain strong. Economic recovery signals in major global markets and anticipated increases in industrial activity have created optimism about future energy consumption. Policy shifts in the U.S., promoting fossil fuel investments and exploration, have also boosted the sector, further enhancing investor sentiment. These factors have aligned to position energy as one of the most resilient and dynamic sectors entering 2025.

2 Energy Outperformers to Buy

Strong Balance Sheet and Dividend Growth Fuel Chevron’s Success

Chevron Corporation NYSE: CVX, the second-largest holding in the XLE ETF, has emerged as a top performer in 2025 so far. With a strong balance sheet, consistent dividend growth, and a diversified portfolio, Chevron has gained 9.3% year-to-date, firmly outperforming its sector and competitors. The company maintains a forward P/E ratio of 14.45 and offers a dividend yield of 4.12%, making it attractive to both growth and income-focused investors.

Analysts have a positive outlook on Chevron, with a Moderate Buy rating and a price target suggesting a potential 10.5% upside. Its upcoming earnings report on January 31 is expected to be a critical catalyst, potentially influencing its trajectory for the rest of the year. Chevron’s ability to outperform the sector and balance strong financial performance and industry challenges with stable dividend payouts makes it a top pick for investors seeking exposure to the energy sector.

Analysts Rate Devon Energy a Moderate Buy With Room to Grow

Devon Energy NYSE: DVN, with a market capitalization of $24.2 billion, almost ten times less than CVX, is another standout performer early on in the sector. The company focuses on U.S.-based exploration and production, operating thousands of wells in key regions like the Delaware Basin and Eagle Ford. Its innovative dividend policy, combining fixed and variable components tied to free cash flow, offers a forward yield of 4.13%, with the potential for significant increases if oil prices remain elevated.

After a prolonged downtrend that began in April 2024, Devon Energy has broken out with a 17.5% year-to-date gain. This trend reversal, combined with its low forward P/E of 7.12, suggests strong upside potential. Analysts maintain a Moderate Buy rating, with projections indicating substantial room for growth. The company’s sharp rebound and attractive valuation metrics position it as a potential leader in the sector for 2025.

Outlook for the Energy Sector

The energy sector's strong start to 2025 reflects favorable conditions that could support continued momentum. The XLE ETF’s performance, buoyed by rising oil prices and sector-specific tailwinds, suggests further gains could be on the horizon. Additionally, major energy stocks like Chevron and Devon Energy show resilience and significant upside potential, especially when considering their impressive dividend yields.

Energy stocks offer compelling opportunities for long-term investors, balancing growth potential with reliable dividend income. While earnings reports and geopolitical developments will be critical in shaping and maintaining the sector's trajectory, the energy market’s current dynamics and early performance suggest 2025 could be a banner year for energy-focused investments.