It should be another good year for energy stocks, according to Goldman Sachs. The sector outperformed the S & P 500 by 78% in 2022, and while it is unlikely there will be a repeat of that magnitude, the backdrop is still constructive for energy equities, analyst Neil Mehta said in a note Tuesday. “We see Brent in a multi-year $80-$100/b range (above the forward curve), the equities ‘sweet spot’ and see company-specific drivers around capital returns, project developments and execution to drive healthy upside/downside dispersion,” he wrote. XLE 1Y mountain Energy Select Sector SPDR Fund’s strong performance Goldman’s bottom-up price targets imply 13% market cap weighted total return to the energy stocks it covers. The firm’s buy-rated stocks have an implied 26% average total return. Investors should keep their eye on pullbacks in the space, Mehta said. There were three in both 2021 and 2022, and he said he would not be surprised if there is a similar frequency this year. “That said, each pullback created an attractive entry point for investors who may have missed the early innings of the rally,” he wrote. Of the stocks Goldman rates a buy, several have upside north of 40% to the firm’s price targets. Here are 10 names on its buy list. The stocks with the highest total return are Antero Resources and Cheniere Energy , both at 48%, according to Goldman Sachs. Antero Resources gained a whopping 77% in 2022 and was down nearly 9% so far this year. Natural gas exporter Cheniere Energy gained nearly 28% in 2022, but so far is down around 5% since the start of the year. Cheniere was also named a top conviction pick for 2023 by UBS in December, thanks to its exposure to the undersupplied liquid natural gas industry. Meanwhile, energy services will offer the best earnings per share growth in 2023, Mehta said. In this space, he likes SLB , Halliburton and, especially, Baker Hughes . “Given sharp performance, risk/reward looks particularly compelling for BKR from current levels as we move into 2023,” he wrote. Baker Hughes gained nearly 23% last year. Among the supermajors, Mehta prefers Exxon Mobil and Conocophillips over Chevron . In an interview with CNBC’s Brian Sullivan on Thursday, Mehta praised Conocophillips CEO Ryan Lance . He said under Lance’s leadership, the company became more growth oriented, fixed its balance sheet and acquired Concho Resources in 2020. Conocophillips is now “the best major in the world,” Mehta said. Shares rallied 63% in 2022. — CNBC’s Michael Bloom contributed reporting.
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