Politicians Are Demonizing Big Oil? Time to Buy!

Politicians in Washington and cable TV pundits are fulminating over oil industry profits as the average price of a gallon of regular gas approaches $4 in the U.S. Meanwhile, President Barack Obama wants to repeal $46.2 billion of tax breaks for oil and gas producers over 10 years and instead invest in alternative energy. Time for investors to dial back on energy stocks?

Not really, say equity analysts and investors. U.S. oil industry profits continue to exceed expectations as the global economy recovers. On a price-to-earnings basis energy companies are trading at the lowest valuation of the 10 broad industry groups in the Standard & Poor's 500-stock index. In other words, today's stock prices may not fully reflect the high-powered profits analysts see for the sector in 2011. The 41 drillers, refiners, and oil-field service providers in the S&P 500 are projected to earn $134.8 billion this year, up 41 percent from 2010, based on analyst forecasts issued in April.