If you're wanting to gain exposure to the energy sector, the good news is that there are plenty of options on the Australian share market. Though, given the very sharp decline in oil prices on Friday night, investors may want to wait for the dust to settle before making a move.
That aside, which ones should you buy ahead of others when the time comes? To help narrow things down, Morgans has revealed a couple of energy shares it believes have major upside potential. They are as follows:
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Santos Ltd (ASX: STO)
The first energy share to look at is Santos. Morgans likes the company due to its resilient growth profile and the diversity of its earnings. It also believes the merger with Oil Search Ltd (ASX: OSH) is a big positive.
The broker currently has an add rating and $8.85 price target on Santos' shares.
It commented: "We expect the resilience of STO's growth profile and diversified earnings base see it best placed to outperform against a backdrop of a continuing broader sector recovery. STO remains our top preference amongst our large-cap energy universe."
"With early indications supportive of our view that material synergies and enhanced growth plans will result from the OSH merger. While in good shape, we expect STO to continue gaining investor support as it executes on the opportunistic OSH merger," the broker added.
Woodside Petroleum Limited (ASX: WPL)
Another ASX energy share that the broker is a fan of is Woodside. This is partly due to its proposed transformative merger with the petroleum assets of BHP Group Ltd (ASX: BHP).
Morgans currently has an add rating and $29.95 price target on the company's shares.
The broker commented: "We believe WPL has benefited from being in the right place, at the right time. With: 1) BHP/WPL having an existing relationship, 2) BHP eager to boost its ESG profile, and 3) WPL being a quality operator (safe hands which is important for BHP)."
"From an economic standpoint we think WPL is clearly getting the better of the deal, with synergies not baked into deal metrics and BHP willing to accept a discount. The deal is transformative, lifting WPL into being a top 10 global E&P with +2 billion barrels of 2P reserves, with EBITDA of US$4.7bnpa and growth options," it concluded.
