Heightened
geopolitical
tensions
have
triggered
volatility
in
crude
oil
prices,
but
one
strategist
is
looking
keenly
for
opportunities
in
the
energy
sector.
It
was
among
the
laggards
last
year,
but
things
have
turned
around
with
many
stocks
now
trading
near
all-time
highs.
Stephen
Ellis,
energy
and
utilities
strategist
at
Morningstar,
said
oil
market
volatility
does
present
challenges
and
urged
investors
to
be
patient,
which
“regularly
pays
off
within
energy.”
“We
are
typically
more
excited
about
energy
stocks
when
oil
prices
collapse
like
they
did
in
2020
or
the
market
has
a
more
negative
view
as
that’s
when
we
can
find
the
most
compelling
returns
and
bargains,”
Ellis
told
CNBC
Pro
on
Apr.
19.
However,
he
did
say
there
were
“selective
bargains”
in
the
market
currently.
It
comes
as
oil
futures
posted
a
loss
last
week
amid
fading
fears
of
a
wider
conflict
in
the
Middle
East
that
would
have
likely
disrupted
crude
supplies.
Brent
crude
oil
prices
were
trading
around
$86.50
on
Apr.
22,
down
4.4%
over
the
past
five
days.
‘Quality’
names
within
energy
Ellis
said
he
searches
for
quality
names
when
selecting
stocks
in
the
energy
space.
His
top
picks
include
Canadian
pipeline
transportation
and
energy
player
Enbridge
,
oilfield
services
company
SLB
,
natural
gas
corporation
TC
Energy
,
and
energy
giants
APA
Corp
and
ExxonMobil
.
“All
of
these
are
‘moaty’
firms
that
have
some
upside
to
our
fair
value
estimates,
even
in
a
period
of
high
oil
prices,”
Ellis
explained.
Stocks
with
wide
“economic
moats”
are
viewed
as
having
durable
competitive
advantages.
Enbridge
He
describes
Enbridge
as
“rare
opportunity
to
acquire
a
long-time
investor
favorite
at
a
discount.”
The
company
recently
marked
its
29th
consecutive
year
of
dividend
increases,
with
a
3.1%
rise
in
its
quarterly
dividends
to
9.50
cents
per
share.
This
brings
its
annual
dividend
payout
to
$3.66
per
share.
Morningstar
has
a
fair
value
estimate
of
56
Canadian
dollars
($41)
on
the
stock,
giving
it
around
16.7%
potential
upside.
TC
Energy,
SLB
Morningstar
has
a
four-star
rating
on
TC
Energy
and
gives
it
a
fair
value
estimate
of
$47,
giving
it
downside
of
around
4.2%.
The
investment
research
firm
gives
stocks
a
rating
of
between
one
and
five
stars,
with
a
top
rating
indicating
that
the
shares
are
undervalued.
It
also
has
a
four-star
rating
on
SLB,
previously
known
as
Schlumberger.
“We
remain
optimistic
about
SLB’s
long-term
outlook.
As
the
energy
transition
continues,
firms
will
need
to
rely
on
oil
and
gas
for
energy
security.
As
such,
international
oil
and
gas
activity
is
expected
to
provide
steady
opportunities
for
SLB
over
the
next
five
years,”
Ellis
said.
Morningstar
has
a
fair
value
of
$62
on
stock,
giving
it
around
24.3%
potential
upside.
ExxonMobil
As
for
ExxonMobil,
it
gives
it
a
three-star
rating
and
a
fair
value
estimate
of
$133,
which
represents
nearly
11%
upside
potential.
Among
the
opportunities
facing
the
company
is
its
commitment
to
oil
and
gas,
even
as
many
of
its
peers
are
diverting
investment
to
renewables,
Ellis
said.
“It
has
responded
to
calls
to
bring
in
more
outside
voices
to
its
board
and
announced
emission-reduction
targets.
It’s
also
investing
in
low-carbon
technologies,
but
these
efforts
are
measured
and
keep
oil
and
gas
production
at
the
core,”
he
said.
“While
this
strategy
is
unlikely
to
win
praise
from
environmentally
oriented
investors,
we
think
it’s
more
likely
to
be
more
successful
and
probably
holds
less
risk.
Exxon’s
investment
strategy
and
will
likely
deliver
superior
returns.”
APA
Elsewhere
in
the
energy
segment,
Ellis
likes
APA
Corp
.
Calling
it
“deeply
undervalued,”
he
believes
“the
market
is
deeply
skeptical
over
its
Suriname
development
potential,
but
I
see
the
stock
price
as
not
pricing
in
any
success
there,”
referring
to
its
exploration
projects
in
the
South
American
country.
“The
situation
effectively
means
investors
are
getting
the
upside
from
the
development
for
free.
This
is
a
very
attractive
attribute
in
that
we
do
not
have
to
depend
on
oil
or
gas
prices
in
the
near-term
for
the
stock
to
potentially
deliver
a
very healthy
return,”
Ellis
said.
