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This broker has upgraded these energy stocks to “buy” following the oil market massacre

Our oil and gas stocks are trying to claw back from big losses that were triggered by ongoing worries about a global oil glut.

The Santos Ltd (ASX: STO) share price regained most of its earlier losses to finish the day down 0.2% at $5.59, while the Oil Search Limited (ASX: OSH) share price and Woodside Petroleum Limited (ASX: WPL) share price improved 0.3% each.

But it’s the Beach Energy Ltd (ASX: BPT) that was a standout with a 0.7% gain to $1.50 and the outperformance of the sector stands in contrast to the 0.1% loss by the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

Is oil finally rising to the top?

There’s not much in the outperformance but energy sector shareholders will be grateful for any gains as the most prominent names in this space have tumbled into “bear territory” since October – meaning they’ve fallen by 20% or more.

The bounce may be sustainable too, at least according to Ord Minnett as the broker has slapped a buy on many oil & gas stocks.

“The recent pullback in benchmark oil prices and coincident falls in energy-exposed stocks have made the Australian energy sector look significantly more attractive,” said the broker.

“Share prices are below our valuations, and we now have Buy recommendations on four of the six energy stocks under coverage.”

Upgrade galore

Ord Minette has upgraded Oil Search and Santos by two full notches to “buy” from “hold”, while Origin Energy Ltd (ASX: ORG) is moved to “buy” from “accumulate”.

Meanwhile, Woodside and Senex Energy Ltd (ASX: SXY) have been upped to “accumulate” from “hold”.

In terms of preference, Ord Minette ranks Beach ahead of the pack with Santos, Oil Search and Origin to follow (in that order).

But this isn’t to say crude prices will be zooming ahead anytime soon. If anything, the broker was cut its Brent oil price forecast to US$65 a barrel for calendar 2019 and 2020.

This resulted in an average cut to net profit forecast for the sector of 11% in FY19 and 27% in FY20.

Nonetheless, there’s too much bad news priced into our energy stocks and the sell-down appears to be driven more by sentiment than fundamentals.

Motley Fool contributor BrenLau 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.

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