For investors worried that they may have missed the big oil rally, the latest price drop could offer another entry point.
Oil prices have fallen over the past two weeks, also leading to lower inventories in the industry. This has created an opportunity for investors to buy companies that may have fallen too far and could rebound if oil shows more strength.
Goldman Sachs analyst Neil Mehta picked out three stocks on Wednesday that now look attractive given the pullback –
Over the past year, energy stocks are up 105% versus 75% for the S&P 500. But since March 11, the
SPDR Energy Select Sector Fund
(XLE) is down 10%. Goldman expects Brent oil prices to hit $75 by the end of the year.
Oil prices rose on Wednesday after a huge container ship got stuck in the Suez Canal, blocking other tankers that collectively carry millions of barrels of oil. Brent crude futures rose 3.2% to $62.76 a barrel. West Texas Intermediate Crude Futures, USA. benchmark, rose 3.4% to $59.71.
Mehta thinks ConocoPhillips is attractive now because it has fallen more dramatically than some other major oil producers in recent weeks – about 4 more percentage points – for no clear reason. Conoco has a strong balance sheet, although some investors may be looking for higher dividends or buyouts, Mehta notes. Conoco’s dividend yield is 3.1%.
Suncor is a Canadian oil company specializing in oil sands production. He has also fallen behind his peers, but Mehta expects that to change. “We view Suncor the same way as
(XOM), as a 2020 laggard that can trace relative underperformance into 2021,” he wrote.
PDC Energy is a small-cap producer that Mehta says will produce $1.1 billion in free cash flow over the next two years, or about 35% of its current market capitalization, at current futures levels. oil. PDC has fallen 24% since March 11, much worse than the average company, as investors favored large caps during the sell-off. But Mehta thinks that could change and PDC’s increased cash flow will allow it to pay off debt and potentially buy back shares this year.
Write to Avi Salzman at firstname.lastname@example.org