Oil stocks recommended by Wall Street

As oil prices have risen by more than 40% this year, analysts and institutional investors have grown increasingly bullish on oil stocks, which many say are still undervalued and poised for a further increase.

Earlier this week, US oil prices hit their highest level in more than six years, before retreating into an OPEC + meeting deadlock that resulted in some volatility.

But the rally of the year so far could still allow US oil companies to improve yields and repay debts, as they remain cautious about their drilling spending, analysts said.

The return of demand for oil and the even wider-than-historical discount at which US oil stocks trade relative to the S&P 500 index argues in favor of greater exposure to energy stocks, analysts said.

Wall Street analysts hold some two dozen US oil stocks with mostly “buy” ratings and stock price targets with a potential double-digit rise percentage, according to data provided by FactSet to MarketWatch.

These stocks include Energy Transfer (NYSE: ET), Pioneer Natural Resources (NYSE: PXD), Devon Energy (NYSE: DVN), EQT Corporation (NYSE: EQT), ConocoPhillips (NYSE: COP), Marathon Petroleum (NYSE: MPC) , Valero Energy (NYSE: VLO), Baker Hughes (NYSE: BKR), Enterprise Product Partners (NYSE: EPD), EOG Resources (NYSE: EOG) and Chevron (NYSE: CVX).

Of these, Chevron, Valero Energy and Energy Transfer each have a dividend yield above 5%, while Enterprise Products Partners has a dividend yield of 7.32%, according to FactSet data.

Energy infrastructure stocks continue to be cheaper than other sectors and are trading at levels below all-time highs in the S&P 500 index, Rob Thummel, senior portfolio manager at TortoiseEcofin, told US News & World Report.

Morgan Stanley’s Devin McDermott raised his rating on Occidental (NYSE: OXY) in mid-June, expecting the stock to rise 40%. Morgan Stanley also raised Marathon Oil (NYSE: MRO) from “underweight” to “evenly”, expecting oil-related stocks to benefit from rising crude oil prices.

Morgan Stanley’s McDermott is also bullish on US supermajors – Chevron and Exxon (NYSE: XOM) – expecting their shares to rise further after reporting better-than-expected second-quarter earnings. The two oil giants are expected to release their financial results for the second quarter on July 30.

According to Morgan Stanley, strong earnings expected in the second quarter, above consensus estimates, should also prompt updates to future projections from Exxon and Chevron.

Goldman Sachs, which has been bullish on oil all year and sees prices hit $ 80 a barrel this summer, also has some favorite picks among US oil stocks.

“We expect Brent to maintain $ 75-80 / bbl over the next 18 months in our financial models, allowing for improved deleveraging and yields,” Goldman Sachs energy analyst Neil Mehta said in a note this week. published by Yahoo Finance.

Mehta is optimistic about Occidental, Exxon and Ovintiv as “recovery stories”. The Goldman analyst also sees Diamondback Energy, ConocoPhillips, EQT Corporation, Pioneer Natural Resources and Devon Energy as the winners of mergers and acquisitions (M&A).

Hess Corp (NYSE: HES) and Schlumberger (NYSE: SLB) round out the list of Goldman Sachs stocks that are expected to gain in the coming months, for company-specific reasons.

Related: The Best Energy Dividend Stocks of 2021

Rising oil prices have made some analysts more bullish on oil stocks than renewables in recent weeks.

Craig Johnson, senior technical research analyst at Piper Sandler, currently prefers traditional energy stocks of the Energy Select Sector SPDR fund (NYSEARCA: XLE) over solar stocks of ETF Invesco Solar (NYSEARCA: TAN).

“I don’t think it’s too late to buy one or the other. But if I want to buy it from a longer term perspective, I’m going to favor XLE over TAN, ”Johnson told CNBC’s“ Trading Nation ”two weeks ago.

Institutional investors are about to buy a lot of energy stocks to gain further exposure to rising oil prices, as they are currently “extremely underweight in the energy sector,” he said. added.

“And since this is the best performance of energy companies since 2005, up 45%, they will have to buy them. They won’t have a choice, ”Johnson told CNBC.

By Tsvetana Paraskova for Oil Octobers

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Felix J. Dixon