In a article for Oilprice.com, Alex Kimani discussed three reasons why Goldman Sachs is bullish on the energy sector. The bank expects Brent and WTI crude oil to trend higher to $100 and $95 a barrel over the next 12 months, respectively.
The bank sees faster growth in China as supporting global demand for commodities. On energy, he sees supply pressures from OPEC+ production cuts, embargoes on Russian crude shipments and global growth as key drivers.
Some other reasons cited for favoring energy are attractive valuations. Currently, it has a P/E ratio of 6.7 which is the cheapest among the 11 major sectors, and it’s considerably cheaper than the S&P 500’s P/E of 22.
Despite the slowing economy and lower energy prices, first quarter earnings remained quite strong. Net margins improved from 11.8% to 10.4%. This contrasts with most industries that are experiencing margin compression. Additionally, earnings are expected to remain stable over the next two years due to low capital expenditures, higher costs for new projects and geopolitical risks.
Overall, energy stocks offer investors attractive valuations and solid earnings growth potential. The longer-term picture remains attractive due to longer-term supply trends, while demand is expected to remain stable.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.