Investors who did not own stocks in the energy sector in January are probably regretting it now in a big way. The strength was so profound that the energy sector outperformed the broader S&P 500 by 24.2% in January. That is the widest performance gap between the two going all the way back to the late 1980s. The question is where we stand now and, most importantly, whether it is too late to buy energy stocks after the massive outperformance.
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According to a new report from the energy team at Goldman Sachs, the answer, as far as they are concerned, is likely no. Even with OPEC announcing this week a 400,000 barrel per day increase in production, the analysts feel that continued strong demand, combined with other mitigating factors, will push oil higher. The report noted this:
Brent oil prices have rallied past $90 per barrel, with steep inventory draws over the last three months in the face of prior consensus expectations for builds. Demand in particular has remained strong, with an only modest hit from Omicron (-0.5 mb/d) but a sizable boost from gas-to-oil switching (from at least 0.5 up to 1 mb/d). This has left the market with critically low inventory levels across a range of petroleum products and regions, with physical market pricing at the strongest since the early 2000s.
We screened the Goldman Sachs energy research universe looking for companies that are rated Buy and pay solid and big dependable dividends. We found five top ideas that still make sense for growth and income investors. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decisions.
BP
This is one of the premier European integrated oil giants, and Goldman Sachs has it on the firm’s Conviction List of top stock picks. BP PLC (NYSE: BP) engages in the energy business worldwide. It produces and trades in natural gas; offers biofuels; operates onshore and offshore wind power and solar power generating facilities; and provides de-carbonization solutions and services, such as hydrogen and carbon capture, usage and storage.
The company is also involved in the convenience and mobility business, which manages the sale of fuels to wholesale and retail customers, convenience products, aviation fuels, and Castrol lubricants. It is involved in refining, supply and trading of oil products, as well as operation of electric vehicle charging facilities. In addition, it produces and refines oil and gas, and it invests in upstream, downstream and alternative energy companies, as well as in advanced mobility, bio and low carbon products, carbon management, digital transformation and power and storage areas.
Shareholders receive a 3.96% yield. The Goldman Sachs price target for the domestic shares is $50, which is well above the $34.17 consensus target. The final BP stock trade Wednesday was reported at $31.96 a share.
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