Top broker warns the oil party is over for Woodside Petroleum Limited (ASX:WPL)

Our oil and gas stocks may be on an inevitable upgrade cycle with the price of crude surging by over 50% in the past year and looking to stay stronger for longer, but JP Morgan believes the party’s already over for two stocks in the sector.

The downbeat assessment stands in contrast to bullish market sentiment towards the sector with the Brent crude benchmark price gaining 0.3% to US$84.17 a barrel.

While energy stocks are falling today in sympathy with the 1% drop in the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) at the time of writing, the sector is regarded as one of the best places to invest on the market as not even the US-China trade war can sink the price of oil even as other commodities have taken a battering.

But the bullish outlook for oil couldn’t save Woodside Petroleum Limited (ASX: WPL) and Senex Energy Ltd (ASX: SXY) from a downgrade by JP Morgan as the broker believes this is the time to be taking profit.

The cut in JP Morgan’s recommendation comes even as the broker significantly increases its oil forecast and upgrades earnings estimates for every stock in the sector.

“Our earnings forecasts are now significantly above the market. We do expect consensus to catch up with our forecasts to reflect the increase in oil prices, we believe the sector looks fully valued on an average price to net present value (P/NPV) multiple of 1.01x, or 0.82x at spot,” said the broker.

The problem with Woodside and Senex is that these stocks are more than fully valued after our largest oil stock added more than a third in value while Senex rallied 60% over the past year.

Their share prices are above JP Morgan’s price targets of $37.00 and 47 cents a share, respectively.

While just about all other oil-exposed stocks are rated a “neutral” by the broker, there are two that are still worth buying.

The first is Origin Energy Ltd (ASX: ORG), which is JP Morgan’s pick of the sector. It believes that all parts of Origin’s business are contributing to an improving balance sheet while the high oil price will boost cashflow from its Asia Pacific LNG joint-venture.

The other stock that’s worth buying is oil services group Worleyparsons Limited (ASX: WOR). While the company isn’t directly exposed to oil prices, it’s a great way to ride the boom in the commodity as demand for its services will stay strong as oil and gas producers ramp up production to capitalise on high crude prices.

Worleyparsons is like the guy selling shovels during a mining boom.

JP Morgan has a price target of $9.25 a share on Origin and a target of $22.50 per share on Worleyparsons.

There are other stocks outside of resources that are well placed to outperform too. The experts at the Motley Fool have picked three of their best blue-chip stock ideas for FY19 and you can find out what they are by following the free link below.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!