The recent pullback in energy shares has moved some stocks into an “advantaged” position, with an improving oil price outlook over the next year, according to BofA Securities.
BofA's Energy Sector Upgrades
Doug Leggate upgraded Concho Resources Inc CXO from Neutral to Buy and reduced the price target from $76 to $70.
The analyst upgraded Cimarex Energy Co XEC from Underperform to Neutral with an unchanged $33 price target.
BofA's Concho, Cimarex Takeaways
While uncertainty and volatility are likely to remain in the energy sector, the price of Brent crude is expected to reach $60 in 2021, Leggate said in the Sunday upgrade note. (See his track record here.)
The analyst recommended moving to large-caps stocks that are “leveraged to a faster recovery in oil prices.”
Referring to Concho Resources, he said the company has a strong balance sheet and premier position in the Permian basin.
Concho is “a best of breed name in US onshore, with attractive upside,” Leggate said.
Cimarex Energy has the free cash flow capacity to “increase investment, stem volume declines and resume the growth needed to justify its share price,” the analyst said.
The Neutral rating hinges on the existence of other U.S. oil stocks that offer a more attractive risk-reward trade-off.
CXO, XEC Price Action
Shares of Concho Resources were up 0.13% at $55.57 at the time of publication, while Cimarex shares were 0.72% higher at $29.30.
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