Goldman Sachs sees the recent rise in oil prices as the beginning of a bigger uptrend and says these buy-rated energy stocks that promise as much as double-digit returns are the way to play it. “We believe we are in a structural upcycle that should result in sustained strong FCF [free cash flow] and returns, on average, over the course of this decade,” Goldman Sachs analyst Neil Mehta wrote in a Thursday note. A combination of output cuts from OPEC and higher demand from the summer has underpinned oil’s meteoric rise. On Wednesday, Goldman raised its forecast for international benchmark Brent crude to as much as $100 per barrel. Goldman also increased expectations for West Texas Intermediate crude to $95 from $88 over the next year. Unpinning this forecast was an anticpation that oil supplies will remain lower for longer. And while pullbacks in such cycles are unavoidable, striking at the right moment and buying the dip is key as the longer-term trend skews toward higher oil prices. “In a structural upcycle, it is important to take advantage when we see these materialize,” Mehta said. Chevron stock has slipped roughly 7% from the start of the year. Over the past three months, however, shares have climbed nearly 8%. Goldman Sachs said Chevron isn’t losing steam ahead. CVX YTD mountain Chevron stock. “We see 16% total return to Chevron,” Mehta said. “[W]e turned more positive on CVX following 2Q results following YTD underperformance.” Shares of refiner Phillips 66 , meanwhile, have climbed more than 15% from the start of the year. Mehta is forecasted 26% upside for the stock going forward, and thinks the firm can find growth even if margins deteriorate somewhat. PSX YTD mountain Phillips 66 stock has added more than 15% from the start of the year. “Based on investor conversations, many are positive on the diversified business mix, which should provide better insulation if margins normalize from current levels (although remain strong absolute),” Mehta said. Canada-based Cenovus stock has ticked up 3.4% from the start of the year, and nearly 23% over the past three months. Mehta said Cenovus presents the best risk-to-reward skew among stocks on the list, and forecasts 21% upside moving forward. CVE YTD mountain Cenovus stock. “After a challenging 1H2023 for Refining performance, we expect utilization to improve in 2H2023, although we recognize progress will be non-linear,” he said. “The company has a high level of oil beta that can benefit if crude is able to sustain above our long-term $80/b Brent oil price assumptions.” Pioneer Natural Resources stock has ticked down roughly 1% from the start of 2023. Mehta forecasts 13% upside moving forward and thinks the company’s strong inventory will stoke an already favorable risk-to-reward skew. PXD YTD mountain Pioneer stock has ticked down 0.5% from the start of the year. “We believe that the company has turned the corner on both capex and volume execution, as seen by strong performance in 2Q,” he said. Mehta expects 19% upside for oil field services stock Baker Hughes , and said the company’s current “corporate turnaround” will stimulate growth. Baker Hughes stock has added more than 20% from the start of the year. BKR YTD mountain Baker Hughes stock. “Baker represents one of the few growth stories in our Energy coverage, with EPS set to grow from $1.55 in 2023, on our estimates, to $2.77 by 2025,” Mehta said. — CNBC’s Michael Bloom contributed to this report.
