Energy sector could ‘absolutely do well again’ in 2023, says analyst

Energy is the best performing sector year-to-date. The S&P 500 Energy ETF (XLE) is up 62%, far outperforming any other equity group in 2022.

In continuation of our series “What to do in a bear market,” we asked the experts if oil and gas stocks can repeat their spectacular performance next year. Here’s what they said.

Can energy stocks match or exceed their impressive 2022 performance next year?

“Energy is up almost 65% YTD in a broader market that is down 15%. Whether you want to view that on an absolute or relative basis, that’s pretty heady performance, and it’s asking a lot for a repeat. That said, the sector could absolutely do well again – maybe just not that well,” Stewart Glickman, energy equity analyst at CFRA Research, told Yahoo Finance.

Louis Navellier, the founder and chief investment officer of asset manager Navellier & Associates, said he expects energy prices to rise in spring.

“I expect crude oil to hit $120 per barrel in the spring due to seasonal demand and the fact that Biden will likely stop draining the [Strategic Petroleum Reserve], so XLE (XLE) has a long way to run,” said Navellier.

Are there any specific energy stocks investors should be buying or holding in 2023?

“We like a lot of names for buying or holding, as our expectation is that oil prices fare well in 2023 – somewhere in the $90/b range seems reasonable to us on a fundamental basis. Our top picks right now are EOG Resources (EOG), Schlumberger (SLB), and Targa Resources (TRGP). All are currently Strong Buys (5-STARS),” said Glickman of CFRA Research.

Louis Navellier’s says his holdings for clients and family include, BP (BP), Blackstone Minerals (BSM), ConocoPhillips (COP), Occidental Petroleum (OXY) and Crescent Point Energy (CPG), among a long list of equities.

Josh Young, chief investment officer for Bison Interests tells Yahoo Finance, “Low valuation, small cap oil & gas producer equities like Journey Energy (JOY.TO) and Sandridge (SD) are well positioned to outperform in 2023.”

“The risk in smaller companies is often in management and balance sheets. Both companies have strong balance sheets. Sandridge actually has a large portion of its market cap in net cash. And both companies have surprised to the upside in the past two years with better-than-expected results and highly accretive acquisitions,” said Young.

If the Russia/Ukraine conflict were to end, and if China fully reopens in 2023, how would this impact the overall energy landscape?

“I hope the Russia-Ukraine conflict ends and that China re-opens. Russian production and exports are currently close to where they were before the war, so the conflict ending wouldn’t have a material effect on supply from here. And rebuilding Ukraine will be very energy intensive,” says Young.

“China re-opening is inevitable and will also be energy intensive, with 2+ million barrels per day of demand to recover to pre-lockdown levels, before accounting for continued demand growth from their large population and growing per capita energy consumption. The oil market will likely remain under-supplied in this scenario,” he added.