Top Picks for 2024 as of February 7

[dan_s]

Morgan Stanley's Top Picks: Integrated and E&P: Stock Picks
Our key picks for 2024 are COP, OXY, FANG, DVN, and CVE

Devon Energy (DVN): After underperforming peers for most of 2023 (~20%) driven by degrading well productivity and softer than expected production, we expect capital efficiency to improve at an above average rate in '24 from more investment in the Delaware Basin (~70% of capital), high-grading activity in the Williston and reducing appraisal in the Eagle Ford.

Diamondback Energy (FANG): With one of the lowest breakeven prices in our coverage (~$30/bbl WTI) a relatively higher price environment helps FANG deliver outsized cash returns. By our estimates, the stock offers a 2024 FCF yield of 11% ahead of its peer group median of 10%. Current dividend yield is over 8%.

Occidental Petroleum (OXY): >$18 B of debt paydowns since 2020 has helped re-rate the stock, but we see more room for relative multiple expansion. Oxy has a high-quality asset portfolio with attractive inventory depth and we see a path for the stock to return to its full historical premium through continued debt/preferred paydown and reinstating a more meaningful base dividend. Execution on Low Carbon growth could drive even further upside.

Cenovus Energy (CVE): The stock has underperformed peers by ~30% since the beginning of 2023, caused in part by unplanned refining downtime. With now normalized downstream operations, we expect 2024 FCF yield of 11% (in line with peers) and EV/DACF discount of ~1.0x
vs other Canadian producers.

ConocoPhillips (COP): Consistent return of cash coupled with a high-quality, diversified, low-cost portfolio gives COP the potential for sustained
outperformance. A mix of short and long cycle projects underpin a ~5% production CAGR over the next decade

[dan_s]

They are also very bullish on Equitrans Midstream Corporation (ETRN)

" We do not believe the economics around Mountain Valley Pipeline and its related contractual triggers are fully reflected in the stock but expect the gap to our $13/share intrinsic fair value estimate to narrow in 1H24 as MVP is completed (derisking regulatory concerns) and management offers post
-MVP guidance (likely driving a positive EBITDA estimate revision cycle and greater clarity around one-year forward deleveraging).

ETRN has favorable natural gas basin positioning as one of the largest Marcellus/Utica gatherers, primarily serving EQT (the largest U.S. natural gas
producer). Underpinned by a solid contract structure, with a majority of gathering, transmission and storage services supported by long-term, take
-or-pay contracts.

Also, clarity around Mountain Valley Pipeline (MVP) should support convergence of stock to fair value as project is completed, leverage is reduced,
and strategic priorities articulated.
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I am adding this one to my Watch List since it could be a nice addition to our High Yield Income Portfolio.