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In a research note released Tuesday, Credit Suisse analyst Manav Gupta told investors that the current pullback in energy is an attractive opportunity.
According to the analyst, energy (S5ENRS Index) has underperformed S&P by -18.7% in the past two weeks.
Gupta explained that while there are currently recession concerns, unless they see a global recession that has a severe impact on demand, they believe the “setup remains very strong and elevated commodity prices will continue to provide earnings tailwind.”
“We continue to believe that in a post Russia-Ukraine conflict world, we are short of crude oil, refined products and natural gas. We estimate global oil market was undersupplied by ~1.5MMb/d in 2Q 22 and will remain undersupplied by ~0.8MMb/d in 2H 22 and this will continue to support higher prices in the near-term,” wrote Gupta. “In our opinion, IEA is overestimating supply growth from certain regions (including OPEC) and still underestimating total global demand.”
The analyst added that higher commodity prices will provide an earnings tailwind for oil and gas names and drive upwards earnings estimate revisions and higher free cash flows that will support higher shareholder returns and accelerated de-leveraging.
“We recommend adding to global majors which gives investors leverage to higher prices oil and gas prices and elevated refining margins. We believe refiners are likely set up to report record earnings in 2Q 22 and given elevated cracks we could see 3Q 22 earnings match 2Q 22 or even exceed those,” said Gupta.
Credit Suisse favors stocks such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and Suncor Energy (NYSE:SU).
