Through the first five months of 2022, the energy and utilities stock market sectors are the only ones in the black. And the energy returns dwarf the 3.8% posted by utilities. The other nine S&P-defined sectors are negative for the year, with five sectors down more than 10% and three down more than 20%.

With energy up 56% year-to-date, you may be thinking you missed your chance. However, the sector has a good chance of continuing to outperform for the rest of 2022.

And I have a few energy stocks in mind…

Despite the significant share price gains over the last year, energy stocks still trade at very low valuations. Currently, the S&P 500 trades at a 21 multiple, and the NASDAQ 100 sits at 25 times earnings. For comparison, Warren Buffet’s favorite upstream energy stock, Occidental Petroleum Corp (OXY), trades for just eight times annual earnings based on the first quarter EPS.

Upstream energy stocks across the sector trade for seven to nine times trailing earnings. When you consider how profits will grow as commodity prices stay high, these shares are tremendously undervalued. Current supply, demand, and regulatory forces indicate that crude oil and natural gas will stay at least near present levels and could continue to move higher.

For upstream energy stocks, I like the companies that have instituted very attractive variable dividend policies. With high oil and gas prices, these companies will be very profitable, and as an investor, you participate in the form of cash dividends. Dividends are a reliable return in addition to any share price appreciation.Three stocks to consider are Chesapeake Energy Corp (CHK), Diamondback Energy, Inc. (FANG), and Devon Energy (DVN). As always, I’m following this sector and giving my readers constant updates in my Dividend Hunter service.