By Michael Bellusci
A slightly positive tilt is creeping into analyst forecasts, with JPMorgan recently turning “more sanguine” on the exploration & production sector, while Citigroup sees a trade in oil service stocks having “legs” after persistent weakness. Still, analysts are favoring larger-cap firms before diving all in. One of Wall Street’s top strategists highlighted the potential for energy equities to rebound, as cyclical segments of the market could present an opportunity.
Capital discipline, the central mantra in which drillers are living by, remains a key focus point for investors. Shale pioneers see output growth slowing next year, which could be a positive for macro commodity prices. Merger and acquisition potential in the E&P sector exists, but higher oil prices will be needed to revive deals given a “clouded fundamental backdrop,” according to Bloomberg Intelligence.
Here are some analysts picks on various sub-sectors:
- Citi’s top oilfield service picks for 2020 are Halliburton Co., Nextier Oilfield Solutions, Chart Industries, Baker Hughes, Schlumberger, Select Energy Services and Liberty Oilfield Services. The bank thinks the oilfield service space has started to “turn the corner.”
- Morgan Stanley’s top E&P and integrated oil picks include ConocoPhillips, Noble Energy and Chevron. “The 2020 backdrop continues to favor large-cap and globally diversified companies,” the bank said in a note.
- CIBC Capital Markets likes oil-sands firms including Suncor Energy, and pipeline stocks such as TC Energy. “Our top ideas for the coming year might seem somewhat mundane, but we view them as logical and the right place in which to allocate capital,” the bank wrote to clients in a note.
- BMO Capital Markets favors Canadian energy firms relative to their neighbors down south as the northern group “appears to have largely addressed the lower for longer price environment, by restoring profitability even at these depressed prices,” Brian Belski said in a note.