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, The price of US oil reaches its highest level in over six years, before stepping back into an OPEC + meeting stalemate that resulted in a bit of volatility.
But the rally of the year so far could still allow US oil companies to improve their yields and repay their debts, as they remain cautious about their drilling spending, analysts said.
The return of demand for oil and the even broader-than-historic valuation haircut at which U.S. oil stocks trade against the S&P 500 index argues for greater exposure to energy stocks, according to the analysts.
Wall Street analysts hold some two dozen U.S. oil stocks with mostly buy ratings and stock price targets with a potential double-digit rise percentage, according to data provided by FactSet to Market surveillance.
These stocks include Energy transfer (NYSE: ET), Pioneer of natural resources (NYSE: PXD), Devon Energy (NYSE: DVN), EQT Corporation (NYSE: EQT), ConocoPhillips (NYSE: COP), Oil Marathon (NYSE: MPC), Valero Energy (NYSE: VLO), Baker Hugues (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 record highs in the S&P 500 index, said Rob Thummel, senior portfolio manager at TortoiseEcofin. American News and World Report.
Morgan Stanley’s Devin McDermott raised his mark on Western (NYSE: OXY) in mid-June, expecting a 40% increase for the stock market. Morgan Stanley also improved Marathon Oil (NYSE: MRO) from “underweight” to “even weight”, 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) – expect their shares to rise further after announcing what it expects earnings to beat expectations for the second quarter. 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 price up to $ 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 this week in a brief. note published by Yahoo finance.
Mehta is bullish on Western, Exxon, and Ovintiv as “stories of reversal”. The Goldman analyst also sees Diamondback Energy, ConocoPhillips, EQT Corporation, Pioneer Natural Resources and Devon Energy as mergers and acquisitions (M&A) winners.
Hess Corp (NYSE: HES) and Schlumberger (NYSE: SLB) completes 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, Piper Sandler’s senior technical research analyst, currently prefers traditional energy stocks in the SPDR Energy Select Sector Fund (NYSEARCA: XLE) versus solar stocks in the Invesco Solar ETF (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 said. 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 OilUSD
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