Oil Prices Rise – Goldman Sachs Says Trading These Stocks For Big Gains
There are bullish deals to be put in place in the oil sector to take advantage of the further surge in the prices of black gold and natural gas, said Neil Mehta, analyst at Goldman Sachs.
Mehta reiterated the aggressive buy ratings and price targets on oil majors ConocoPhillips (COP) and ExxonMobil (XOM) on Monday. The analyst sees ConocoPhillips offering a 20% return to investors over the next 12 months.
“The company is expected to return 30% to 40% of cash flow to shareholders in the form of dividends / buyouts, has proven to be a key competency in M&A execution, offers better geographic diversification than many E&P [exploration and production companies], but a higher oil leverage than that of the American majors. In addition, the stock trades at the highest yield on available cash among the majors in 2022 and at the lowest EV / DACF multiple, ”says Mehta.
Meanwhile, analyst is even more bullish on an ExxonMobil which has had a difficult year that includes a board loss to activist Engine No. 1. Mehta believes ExxonMobil stock has potential total return of 24% over the 12 months.
According to Mehta, “Exxon is one of our more out-of-consensus ratings, where most investors we talk to are concerned about (a) the sustainability of earnings execution given lower EPS surprise ratios than the S&P in recent years and (b) the premium valuation relative to our US oil peers. However, we argue that a premium valuation is warranted by a strong asset base and historical trading patterns. also expect profits to continue well into the future. “
Year to date, ConocoPhillips and ExxonMobil shares are up 64% and 44% respectively. The S&P 500 gained 19%.
Mehta is the most bearish on Chevon (CVX) among the oil majors, giving it a Hold rating.
Traders should be prepared for other oil analysts on the short side to follow Mehta’s lead with bullish calls until the end of the year. To be sure, oil and natural product prices are recovering strongly – just proving that this is a long sector likely to see an increase in earnings expectations for the fourth quarter and the start of the year. 2022.
Oil prices hit their fifth straight day of gains on Monday amid concerns over tight supplies as global economies recover from the pandemic. Brent crude oil has reached levels not seen since October 2018, around $ 80 a barrel.
Natural gas prices have continued to skyrocket since mid-August – prices have risen 40% since August 23, according to data from SunDial Capital Research.
Mehta’s colleagues who cover the oil sector said on Monday that prices would likely rise further from here.
“We expect this rally to continue, with our year-end forecast for Brent of $ 90 / bbl versus $ 80 / bbl previously. While we have long had a bullish outlook on oil, the current global deficit in oil is Oil supply and demand is greater than expected, with the recovery in global demand due to the Delta impacting even faster than our consensus forecast above and with global supply remaining below our consensus forecast lower, ”said Damien Courvalin, head of energy research at Goldman.