The markets may have just ended their super cycle for the past four years (2020-2024), sponsored by low-interest rate environments pushed by the FED to counteract the effects of the COVID-19 pandemic. After inflation ran wild and the FED hiked rates to levels not seen in decades, it could be time for the cycle to start again. This time, up to six rate cuts are being proposed for 2024.

Before you get ahead of yourself, like markets are doing by pricing in the rate cuts before they are even announced and crystalized (as seen in their all-time high prices today), you need to understand that a sector rotation brought by a money shift could be the most significant opportunity for your portfolio if you know where to look.

 MarketBeat has done the homework to point you in the right direction. Looking at the performance of the Energy Select Sector SPDR Fund (NYSEARCA: XLE) against the broader S&P 500, you will see that energy stocks underperformed by up to 30.0% in the past year. This gap leaves names like Hess (NYSE: HES) to take the reigns in double-digit upside for reasons that will become clear in just a bit.

The machine is oiled

Why would energy stocks be even as attractive today as they once were? Most market participants will see the underperformance in the past year as a bearish sign and currently compressed (below $80 per barrel) oil prices certainly are not an incentive selling point for energy profits, but that’s in the rear-view mirror.

How do you monetize what’s on the road ahead? Well, extensive research needs to be done, but here’s the main takeaway: Oil could rise to as high as $100 a barrel in 2024.

Analysts at The Goldman Sachs Group (NYSE: GS) have taken a bullish stance toward the manufacturing sector of the United States economy; as stated in their 2024 macro outlook report, a breakout is the view for that space. If the FED begins to cut rates, the dollar index will lower along with interest rates, making American exports more attractive to foreign nations.

Of course, to export goods, manufacturing needs to step up its production activity, which is where Goldman and the FED shake hands. Now, machinery and raw material that is called upon for this production ramp up will require lots of oil.

This is also why these same Goldman analysts felt comfortable projecting a price range for oil between $70 and $100 a barrel for this year. Considering that prices just bounced up from $70 up to a high of  $78 last week, you could say that the big money shift is underway today.

Now, why choose Hess stock over other worthy competitors like ConocoPhillips (NYSE: COP) or even Warren Buffett’s very own Occidental Petroleum (NYSE: OXY)? Well, the answer is really simple: You are probably looking for momentum in this surefire trend that is forming rather than parking your money indefinitely in the hopes that you make more.

Pick and choose

To understand the market’s language, you must keep two things in mind. These two factors have driven stock prices since the speculative times of South Sea stock, which led people to realize a massive bubble forming that needed to be popped.

The two factors are: How much are earnings set to grow in the stock, and how much will you be willing to pay for that growth today. To simplify things, the forward price-to-earnings ratio will be considered since it’s the market’s way to value tomorrow’s earnings. For the U.S. oil industry, this multiple stands at a 12.0x average.

Anything above this average must be able to justify its premium valuation, preferably through reasonably high earnings growth expectations. For Hess, this is the case.

With a 13.6x forward P/E, Hess is commanding a 13.5% premium over the rest of the sector, which is more than justified. You see, while the industry is projected to grow its EPS by an average of 30.9% over the next twelve months, Hess analysts are confident this stock will see 71.6% growth instead.

So, the market is willing to pay a premium value for a stock leading the industry in earnings growth. ConocoPhillips and Occidental trade at a respective 20.8% and 11.7% discount to the industry average, with 9.5x and 10.6x forward P/Es for both. Why would the market discount these great names in such a way?

Analysts have projected only 11.1% EPS growth for ConocoPhillips and a similar 16.5% for Occidental. There you have it: no growth, no premium. So, you understand that a price target of $172.7 a share for Hess stock may be conservative, knowing that the big trend hasn’t even taken on its total momentum yet.