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Morgan Stanley: 6 Stocks for Energy Comeback

Morgan Stanley: 6 Stocks for Energy Comeback
(Brainstormoff/Dreamstime)

By    |   Friday, 06 November 2020 12:28 PM

Morgan Stanley analysts recently offered a half-dozen stocks for savvy investors to consider amid an expected rebound in the battered energy industry.

The bank's analysts reportedly see “an increasingly favorable risk-reward” in energy stocks after the sector’s historic 50% drop this year.

Devin McDermott and other Morgan Stanley energy analysts told clients in a note that energy and production companies and pipeline operators in the so-called midstream sector “are beginning to offer cash flow profiles competitive with the broader market for the first time in recent history,” Barron’s reported.

“Fundamentally, upstream energy companies now intrinsically reflect a long-term oil price of $41, below the average strip price of $43 over the next 5 years,” the analysts wrote.

The firm’s top picks include Chevron (CVX) among integrated producers, ConocoPhillips (COP) in the E&P sector, Schlumberger (SLB) in oil services, Marathon Petroleum (MPC) in refining, Suncor Energy (SU) among Canadian producers, and Enbridge (ENB) among pipeline operators.

Morgan Stanley sees a more favorable political backdrop for the industry given the prospect of a Biden presidency and a divided Congress relative to pre-election expectations of full Democratic control in Washington, Barron’s explained.

“In general, we believe the actual energy path could trend more moderate relative to Biden’s pre-election platform, in part driven by lack of a Senate majority, which could moderate key appointees to federal agencies. Moreover, most of the more meaningful energy sector reforms require legislation, something that would have a very low likelihood of being implemented under a split government,” the firm’s analysts wrote, according to Barron’s.

“As a result, a clean energy standard, carbon tax, or an infrastructure bill with outsized support of clean energy (wind, solar, carbon capture, hydrogen, battery storage and electric vehicles) may no longer be feasible. Similarly, major tax changes appear unlikely, including those that could compromise the sector’s favorable tax treatment,” the analysts wrote, according to Barron’s.

To be sure, the close and inconclusive U.S. election has scuppered some short-term trades premised on a clear Joe Biden sweep, although most money managers say they are sticking to bets on plentiful stimulus and a green boom, regardless of who triumphs.

A shift to more environmentally friendly investing, too is here to stay, many experts reckon, Reuters explained.

"The greening of the global economy is going to be something that will happen regardless of who's in charge, green energy is cheaper than fossil fuel energy," said Rupert Watson, head of asset allocation at Mercer Investments.

"Politicians can give it a kick in the right direction but it will happen anyway."

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Morgan Stanley analysts recently offered a half-dozen stocks for savvy investors to consider amid an expected rebound in the battered energy industry.
morgan stanley, stocks, energy, comeback
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2020-28-06
Friday, 06 November 2020 12:28 PM
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