GS recommends FANG, PXD and OXY

[dan_s]

Barrons: The Biggest Threat to Oil Stocks Just Might Be Disinterest

By Teresa Rivas March 22, 2018 10:50 a.m. ET

After slumping for much of 2017, energy hasn't had it easy this year either, with the Energy Select Sector SPDR ETF (XLE) lodged firmly in the red.

Nonetheless, analysts are still seeing the positives in the sector. They've been arguing that energy companies are exercising capital discipline, have stronger balance sheets, and are even predicting a brighter picture for big oil. And the stocks got a boost, finally, on a surprise decline in oil inventories.

Goldman Sachs' Brian Singer is one of the bulls. After hosting meetings with exploration and production companies in Houston recently, he came away more confident that the three D's of energy--Discipline, Demand, and Disruptions--are working in the sector's favor.

On the discipline front, he writes that companies haven't abandoned their capital discipline even as they've grown more optimistic about oil prices. As for demand, he cites bullishness on global trends from integrated oil companies and refiners. And disruption? Singer sees ongoing confidence in the OPEC cuts that should stay in place through the year, with strong compliance.

Singer writes that while all this is good news, it may not be enough to combat what has become the fourth 'D' in energy--disinterest from investors. Nonetheless, he was encouraged by a "noticeable improvement" in investor sentiment, and he thinks that can continue on the back of favorite first-quarter execution and lower inventories.

His favorites include Occidental Petroleum (OXY), which has shown good production in the Permian basin and has gotten too cheap; Diamondback Energy (FANG), which he believes can deliver differentiated results and deserves a premium; and Pioneer Natural Resources (PXD), which should see good Permian production and cost savings.