Goldman Sachs believes the current downturn in the energy sector creates attractive opportunities for investors. The Energy Select Sector SPDR Fund (XLE) was down about 8% year-to-date as of Friday, according to FactSet. The energy sector is down 9.4% in 2023, the biggest drop among the 11 major S&P 500 sectors. Meanwhile, the broader market index is up 9.4% in 2023. Goldman Sachs attributed the underperformance of the energy sector to a combination of macroeconomic conditions. Mild winter temperatures led to lower natural gas prices and oil supplies from Russia were much higher than expected. Goldman Sachs noted that concerns about industrial demand are also concerns about diesel. The bank’s analysts added that with the Federal Reserve appearing to be nearing the end of its rate-hike cycle, the market has shifted towards big tech stocks. With this in mind, Goldman Sachs analysts named seven Buy-rated energy companies that have underperformed relative to their peers but are expected to improve in the coming months. Take a look at the stocks below, and what analysts expect for their future: Natural gas company Antero Resources has been an “underperformer” through 2023, with shares down more than 23% year-to-date, according to Goldman Sachs. The company attributed the weakness to lower heating demand and lower natural gas liquids (NGL) prices due to an oversupply. “While today’s outlook is less positive, we continue to believe that AR’s favorable conditions benefit from (1) low-cost Appalachian assets and a strong balance sheet, which can support higher cash returns; (2) ) its ability to achieve premium pricing with 75% of its natural gas sold on the Gulf Coast at higher prices than Henry Hub; and (3) our long-term outlook for NGL prices is positive as chemical demand improves,” said the analyst Neil Mehta wrote in a note Friday. Goldman Sachs sees an upside potential of 43% for Antero shares over the next 12 months. ConocoPhillips was also rated as an underperformer, but its business outlook remains positive. The stock was down 13% as of Friday’s close. Goldman Sachs says Conoco shares could rise 21% over the next 12 months. “Importantly, despite the oil sell-off, we firmly believe that COP will be able to deliver on its commitment to return $11 billion in cash to shareholders in 2023,” Mehta said. He added that ConocoPhillips offers a “unique combination of high returns, strong execution, differentiated growth projects (such as LNG) and continued share repurchases/dividends.” Goldman also picked oil services company Halliburton as an undervalued energy brand. Shares are down more than 23% so far this year and are trading at more than double their peers’ discount. To be sure, Goldman acknowledged that Halliburton’s stock price could fall further due to near-term uncertainty. “That said, for investors looking ahead to the year ahead, if oil prices firm up back to $85/bbl Brent, as we expect, and Henry Hub returns to above $3/MMBtu, as we expect , we think HAL also has a clear upside path. We see 51% upside to our 12-month price target of $45,” Mehta said. HF Sinclair is another company on the bank’s recommended trade list that has underperformed year-to-date. Goldman Sachs estimates the refiner could rise 39% over the next six months. Other names include Imperial Oil and oil exploration and production company Kosmos Energy, both of which have lagged significantly over the past month, with shares down 12% and 5.8%, respectively. Nonetheless, Mehta said Kosmos could rise 43% in the next half year as deleveraging progresses. —CNBC’s Michael Bloom contributed to this report.
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