Goldman Sachs Names Its Favorite Energy Stock: Exxon Vs. Chevron

In response to the banking crisis, energy stocks fell last week after oil prices fell to a 15-year low and as oil prices plunged, energy stocks plunged.

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In the S&P 500, the energy sector dropped 7% last week, gaining some ground since then, rising around 5% this week so far, and oil prices also rose over 1%. The energy sub-sector in the S&P 500 also dropped last week by 7% but has since recovered some ground.

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Goldman Sachs reported in a note dated March 16 that it likes three energy stocks despite the volatility of the stock market.

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Chevron vs. Exxon

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According to Goldman Sachs analysts, Exxon is one of the best defensive plays in the market, and they recommend it over rival Chevron if investors are looking to take a defensive position.

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“Despite there being a less clear case between Exxon and Chevron than it was a year ago due to the 34% spread between these stocks, we remain optimistic on the prospects of XOM given the quality of organic growth initiatives in the upstream (LNG, Guyana) and downstream (Beaumont, Chemicals)," they wrote.

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Typically, upstream is concerned with the extraction of crude oil and natural gas, and downstream is concerned with the refining of crude oil.

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The analysts, however, reported that some investors were becoming more optimistic about Chevron in recent years. Despite the fact that the company has a strong balance sheet, it is perceived by some to be an excellent opportunity to bolster its portfolio through M&A, given that the oil price and equity environment are currently low.

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The Midstream Sector

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It has been reported that midstream energy stocks held up better than others during the recent pullback — a sector that involves companies involved in processing, storing, and shipping oil and gas. In addition, the bank explained that its direct exposure to the commodity is lower, as is its cash flow, which is longer duration.

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“Investors have always hoped that this will be the case, but historically, that has not been the case because of significant outspending and challenged balance sheets,” according to the bank. “Having improved capex discipline and material deleveraging for the past three years, we are more confident this relative outperformance can continue after this.”

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Oneok vs. Targa

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A Goldman report on midstream stocks commented on the "more positive" position the brokerage was expressing about U.S.-based companies Targa Resources and Cheniere Energy. However, it warned that this group of companies, including Oneok, had underperformed the more defensive names in their segment.

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There is a compelling risk-reward profile on TRGP compared with Oneok, despite the fact that it has a modestly worse performance than Oneok. This is because the company's operations won't be affected as much by a decline in oil prices as Oneok, according to the bank's analysts.

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Enterprise Products Partners is a defensive stock that might be good for investors looking for a more defensive play within the energy sector, Goldman said.

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According to the bank, "In our view, EPD expects to be fairly better positioned compared to its peer group based on its diversified footprint, ability to drive volume share gains via incentive rates / its strong marketing operations," the bank wrote.