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Ignore the volatile oil price and buy the Beach Energy share price: Credit Suisse

The Beach Energy Ltd (ASX: BPT) share price has managed to hang on to most of its gains today and is outperforming its larger peers and the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.

The BPT share price added 1% to $1.66 in the last hour of trade while the Origin Energy Ltd (ASX: ORG) share price, Santos Ltd (ASX: STO) share price and Woodside Petroleum Limited (ASX: WPL) share price ceded a chunk of their morning gains.

The Beach Energy share price may be holding up better than other oil stocks because Credit Suisse upgraded the stock to “outperform” from “neutral” as it boosted its price target to $1.75 from $1.25 a share.

Acquisition opportunities

“We like Australia’s domestic gas market, the east coast gas consolidation play and BPT’s leadership in it,” said Credit Suisse in a note released today.

“We consider BPT uniquely placed as a focused domestic gas player to potentially capture the east coast gas trading and consolidation opportunity, upon further organic and inorganic supply growth, and as more flexible molecules become available.

One takeover target that Beach Energy might make a move is Cooper Energy Ltd. (ASX: COE), according to the broker.

Upbeat industry fundamentals

But acquisitions aside, Credit Suisse likes Beach Energy’s Waitsia asset, which is considered the company’s best organic growth project given that commercial discoveries like this are rare in Western Australia.

It also helps that the WA gas market is expected to tighten considerably from early to mid 2020s, added Credit Suisse.

“Oil price swings aside, we expect price support over the next 18 months from continued cost reductions combined with modest production growth at Cooper Basin, further progress on realising targeted A$110mn pa synergies and cost/production improvements by 2020 (from pre-Lattice deal levels, worth ~A$0.22/sh), and the thematic appeal presented by one of the best ways to gain exposure to the east coast Australian gas market,” said Credit Suisse.

But Beach Energy isn’t the only resource stock that’s attracting investor attention today. In fact, four of the top five best performers on the S&P/ASX 200 are resource stocks.

This includes the Whitehaven Coal Ltd (ASX: WHC) share price (and you can read why by clicking here, South32 Ltd (ASX: S32) share price, Alumina Limited (ASX: AWC) share price and Iluka Resources Limited (ASX: ILU) share price.

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Motley Fool contributor Brendon Lau owns shares of South32 Ltd. 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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