Goldman Sachs names big oil stocks for the year

Analysts at Goldman Sachs on Friday named big oil stocks that will rally as much as 54% this year, as the transport market gradually recovers and generate cash returns for investors.

The investment bank is positive that the transport sector will see a “strong” recovery in the second half of 2021, after the sector plunged to its lowest levels in 2020 due to the coronavirus pandemic.

“As we look farther into 2021, we believe that the combination of oil price recovery, improving downstream margins and cost-cutting will trigger the beginning pf a positive earnings revision cycle for the European integrated majors,” Goldman’s analysts led by Michele Della Vigna wrote in a note published this week.

European Big Oil has risen about 40% since October, and Goldman says there is a possibility of another 20% to 50% upside for its “buy” rated stocks.

So far, BP has the highest upside potential, due to its exposure to transportation oil demand, the net-zero pledge and potential share buybacks, Goldman Sachs said. Also, New York-listed BP ADRs have the potential to rise as much as 60% over the next 12 months. Its London-listed shares also have a 54% upside potential.

The investment bank also named Shell’s stock, with an upside potential of 30% and noted its net-zero strategy and possible increase in dividends as a potential catalyst. France’s Total stock has an upside potential of 26%; Spain’s Repsol could rise by 18%; and Italy’s Eni could rise by 15%.

In the published note, Goldman Sachs said a transportation recovery can be the driving force for the “underlying commodity and Big Oils equities” which could become of the “key recovery/value trades” in the nearest futures. The firm is also positive that many oil companies will most likely report solid earnings for the first quarter of 2021, which will serve as a catalyst for the much anticipated rally.

According to Goldman Sachs, this quarter will be more profitable for oil companies compared to Q4 of 2020, when oil prices regained stability at the end of the quarter.

“[The fourth quarter] was very challenging for the sector mostly due to the sudden increase in prices at the very end of the quarter, hurting marketing, trading, refining and derivative positioning with no benefit to upstream due to delayed pricing. But we expect the business environment in the first quarter to be substantially better as commodity price increases happened early in the quarter,” Goldman Sachs’ analysts wrote.