We will experience a monumental election in just a few days.

Despite a strong economy (at least according to the stats), low unemployment, and a stock market hovering around all-time highs, dissatisfaction with where the U.S. seems headed runs deep.

Over 60% of Americans believe the country is on the wrong track.

From the right, conservatives feel that values once widely shared across society are under attack. “Conserving values” is the core principle of conservatism, after all.

The enemy is within, according to Trump—a sentiment that a significant portion of the country shares.

From the left, progressives feel their values have never had any representation to begin with.

And both sides are chomping at the bit to use democracy to shove their values down everyone’s throats.

Meanwhile, in the middle sits an actual majority that can’t help but feel forced to pick a side.

They have no candidate. So, these voters from the middle must swallow a bitter pill of values in the name of Democracy.

No matter which side wins, the aftermath of this election could take markets for an uncomfortable ride.

But this one forgotten-about sector could smooth out the volatile road ahead.

Played Out

The typical advice for volatile markets goes something like this.

Seek shelter in defensive sectors like utilities, consumer staples, and healthcare.

Dividends and stable cash flows prop up utility stocks; people need consumer staples no matter the environment, and the same holds for healthcare stocks.

But these sectors, like most of the market, trade at extremely high valuations based on their future growth reliance, a metric I explain in detail here.

Each of these typically defensive sectors trades at levels last seen over 20 years ago.

Utilities caught a bid with the AI rush to nuclear, which will take years to pay off. Consumer staples ran up as a defensive play against slowing economy fears. And the whole GLP-1 Ozempic Wegovy rush pushed up healthcare stocks.

As far as hedging uncertainty goes, these traditional defensive plays are played out.

But there’s one sector that got left behind. However, buying into it requires the discomfort of going against the grain.

Transition to More Power

Among all major U.S. sectors, energy stocks carry the cheapest valuations.

A mere 6.8% of energy stocks’ collective market value relies on future growth. And with AI sucking up every gigawatt in site, the global economy needs all the power it can get.

Yes, I know nuclear will meet those demands. But that could easily take a decade. Microsoft’s Three Mile Island restart will take four years. The first of seven small modular reactors (SMRs) that Google contracted to build will not be online until 2030.

Plus, Green Energy can’t keep pace with demand (and is far too unreliable for AI data centers).

That leaves oil and gas as the most abundant and reliable solution for the foreseeable future.

And low energy sector valuations create an opportunity to get in on an inevitable energy bottleneck.

You also can’t forget about the potential for oil supply shocks from the escalation of wars in Ukraine and the Middle East.

Given oil’s range-bound trading over the last two years, energy is a forgotten about sector. Contrarian plays make for an uncomfortable leap. But not nearly as uncomfortable as missing transitional moves like the 210% rally in energy stocks the last time oil was in the dumps.

Source: TOS

This time around, oil is transitioning from a period of unfavorable energy policies to being the only solution to an onslaught of unmet power demand.

I’ll have more to say about specific plays in this sector soon.

As for the election, vote your values and buckle up for the results.

Think Free. Be Free.

Don Yocham, CFA

Managing Editor of The Capital List