No, you’re not dreaming. Oil rigs, mortgages and coal mines are taking centre stage as software, social media and the metaverse are escorted out the back door.

A booming economy, rising commodity prices and the first interest rate hiking cycle in years has powered a resurgence in energy, resources and finance, sectors which have traded at cheap valuations for much of the last decade and are more prominent with value investors. Growth stocks promising future profits are falling out of favour.

“It's clear that value has been more sought after by investors recently, bucking the great run growth had for some time,” says Chris Tate, a manager research analyst at Morningstar.

Australia’s value benchmark S&P/ASX 200 Value is up 5.1% this year, compared to a 4.7% decline for the growth equivalent.

Analysts are divided about whether we’re at the beginning of a new regime or simply living through a brief interregnum before growth stocks rebound. Advocates argue Russia’s invasion of Ukraine has shocked commodity markets already straining from years of underinvestment and a rebound in demand. Most signs point to interest rates moving higher. Rates were raised in the US and UK central banks last week, and UBS economists expect the Reserve Bank to follow by June.

However, it may be too soon to dismiss growth stocks. Easing energy prices and cheaper valuations helped ignite a rally in technology stocks that has taken the Nasdaq Composite up 12% since last Monday. Australia’s local technology index is up 10% over the same period.

For those on either side of the debate, we’ve highlighted a series of undervalued stocks and sectors.

Energy

Despite double-digit jumps in oil and natural gas prices this year, there’s still value in parts of the Australian energy sector, according to Morningstar analysts.

Woodside Petroleum (ASX: WPL), Santos (ASX: STO) and mid-sized player Beach Energy (ASX: BPT) are trading in the four-to-five-star range at discounts between 20% and 40%.

All three producers have soared this year in line with rising energy prices, Woodside jumping 52% at one point Of the two majors, Woodside is more exposed to rising oil prices thanks to its upcoming merger with BHP’s oil and gas business. Oil will rise to just under a third of production, from a fifth today, under the deal set to complete in early June.

The natural gas giant is also benefiting from a decision to sell larger quantities of its products on spot markets, as opposed to long-term contracts. Roughly 15% is sold on spot markets, versus 6% for Santos, according to data from investment bank UBS. Conversely, it could be more exposed to prices falling.

Resources

An iron ore rally stretching back to November alongside dizzying jumps for coal and base metals has left much of Morningstar’s resource coverage overvalued, although that could soon change.

Major miners BHP (ASX: BHP) and Rio Tinto (ASX: RIO) and a slew of mid-tier players could see their fair values upgraded should today’s record commodity prices stay elevated for any length of time, says Mathew Hodge, Morningstar director of equity research. BHP and Rio closed on Wednesday at 24% and 25% premiums to fair value, respectively.

Coal miners Whitehaven Coal (ASX: WHC) and New Hope (ASX: NHC) could see fair values as much as double should coal prices maintain levels notched in the immediate aftermath of Russia’s invasion of Ukraine. Russia accounts for roughly 15% of global coal trade.

In a nod to the difficulty forecasting commodity movements, prices for a broad range of basic materials have eased off early-March highs. Iron ore prices closed on Tuesday at US$143.4, down from a year high of US$160 on 8 March. Coal prices remain more than double 2021 levels despite slipping 25% from an all-time earlier this month.

Finance

Australian banks have staged a double-digit rally since early March as they benefit from rising rate expectations and the local economy’s commodity boom.

"We believe this is due to Australia's commodities-dependent economy, accelerating inflation and rates story as well as a strong capital adequacy and non-performing loan combination," according to Citibank in a note that compared the outperformance of local banks to their struggling overseas counterparts.

UBS economists now expect the Reserve Bank to raise rates in July, up from August. Derivatives markets are betting rates top out around 1.5% by December.

The rally in bank stocks has left Westpac (ASX: WBC) the sole Big Four in undervalued territory. NAB (ASX: NAB) and ANZ (ASX: ANZ) are in a fairly valued range while Commonwealth Bank (ASX: CBA) is trading at a 29% premium to fair value.

Pockets of value remain among asset managers, insurers such as Suncorp (ASX: SUN) and payments innovators like EML Payments.

US tech still attractive

Companies with trillion-dollar market capitalisations and wide-moats remain undervalued despite a rally in US technology that boosted the Nasdaq Composite out of bear market territory when.

Amazon (AMZN), Facebook-owner Meta Platforms (FB), Alphabet (GOOGL) and Salesforce (CRM) are among the wide-moat US technology firms trading at double-digit discounts to fair value after selling off sharply this year.

US technology has led a global rally in growth stocks starting last Monday. Investors may have been lured in by the big discounts on display.

"You're beginning to see a little bit of the revenge of growth stocks," said Wayne Wilbanks, co-founder and chief investment officer of Wilbanks Smith & Thomas Asset Management LLC, in conversation with Dow Jones. "Prices have collapsed, so valuations have gotten much better, to the point where that outweighs interest-rate concerns."