Are energy stocks ready for a rebound?

NEW YORK Mon Oct 20, 2008 1:51pm EDT

A customer fuels her car with gas at a Morrisons supermarket in Coalville, central England, October 15, 2008. REUTERS/Darren Staples

A customer fuels her car with gas at a Morrisons supermarket in Coalville, central England, October 15, 2008.

Credit: Reuters/Darren Staples

NEW YORK (Reuters) - Oil company stocks have seen their fortunes turn from good to bad as the prices of crude oil and natural gas tumbled about 50 percent from their peaks in July. The Standard & Poor's Energy company index .GSPE has dropped more than 36 percent since the beginning of the year.

With some OPEC members hoping to get agreement for a cut in crude exports at their meeting later this week and natural gas producers eyeing cutbacks to drilling, will energy prices rebound, and are the companies now a good bargain?

TIME TO BUY

R. LEWIS ROPP, equity analyst at Barrow, Hanley, Mewhinney & Strauss:

"We think there's still some potential downside with the commodity prices, but the stocks probably reflect already a $50 oil price."

"Oil stocks are definitely beginning to look attractive. In natural gas we're somewhat of a contrarian there. A lot of people are bearish there ... (but) if you start laying down rigs you immediately get a (natural gas) supply response and that turns the whole situation into a weather bet. And given any kind of a normal winter, we think natural gas prices will be OK next year."

"So frankly, we probably, all in, view this as a buying opportunity here. The beautiful thing is that there's a lot of sell side analysts (that) we think are going to be changing ratings and that will kind of mark a bottom here."

Ropp sees Occidental Petroleum (OXY.N), ConocoPhillips (COP.N), Marathon Oil Corp (MRO.N) and BP Plc (BP.L) as best bets.

VOLATILITY MEANS STAY ON THE SIDELINES

MARK COFFELT, head portfolio manager at Empiric Advisors Inc in Austin, Texas:

"The stocks are cheap, but I'm a little bit perplexed by the energy sector right now. I'm not adding to them and I'm not selling them at this stage. I think if we could get a sense that oil prices have stabilized and maybe OPEC was back in control and going to hold prices steady, then I'd be very favorable to energy stocks."

TIME TO SELL

PAUL SANKEY, integrated oil analyst with Deutsche Bank in New York:

"It's a top-down call that the economy is going to go into a global recession. I don't think you can fight that. Oil demand is so weak that you also have to question whether OPEC will be able to control the price."

Sankey has sell ratings on companies with a high cost of production like ConocoPhillips (COP.N), Murphy Oil Corp (MUR.N) and Suncor Energy Inc (SU.TO).

(Reporting by Matt Daily and Anna Driver, editing by Richard Chang)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.