Last week’s OPEC meeting was seemingly ordinary, which is exactly what many Wall Street analysts were hoping for. Global oil market fundamentals have been improving, and Goldman Sachs analyst Brian Kinsella sees plenty of buying opportunities in the Energy sector now that the OPEC meeting risk is out of the way.
Kinsella believes that natural gas plays, which have already benefitted from a 15 percent surge in Henry Hub prices due to warmer-than-expected weather forecasts, have more upside potential in the near future.
“The pain trade is likely higher for gassy E&Ps—given still elevated short interest on a ‘days to cover’ basis—if gas prices continue to grind higher, despite valuations largely reflecting the natural gas strip,” he explains.
Kinsella also mentions that mutual funds have been significantly increasing their exposure to the Energy sector, with both large-cap growth funds and small-cap core funds now overweight energy versus their respective benchmarks.
So far this year the Energy Select Sector SPDR (ETF) XLE is up 12.2 percent versus only a 3.5 percent gain for the SPDR S&P 500 ETF Trust SPY.
Goldman currently has the following nine Energy stocks on its Conviction Buy list:
Exxon Mobil Corporation XOM
Cenovus Energy Inc (USA) CVE
Hess Corp. HES
Diamondback Energy Inc FANG
PDC Energy Inc PDCE
EOG Resources Inc EOG
Schlumberger Limited. SLB
Sempra Energy SRE
NextEra Energy Inc NEE
Disclosure: the author is long SLB.
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