Analyst: Values to be found in the energy sector

Despite continued uncertainty in the global economy, there are plenty of good investment opportunities in the energy sector, says Doug Leggate, a senior analyst with Merrill Lynch Global Research. He says companies heavily invested in natural gas will continue to have a tough time over the next several months, but such companies have a substantial upside over the next two to three years. Natural gas prices have been battered by record supplies and a mild winter, but Leggate says it can’t get much worse, and adds the outlook should improve as the industry moves away from dry gas production and embraces liquefied natural gas export opportunities. Leggate also says he’s bullish on U.S. refining. While 10% of U.S. refining capacity has been lost over the past 12 months, thanks in part to the cost of environmental regulations, cheap natural gas—used as an energy source and a feedstock for low-sulfur diesel—gives U.S. refineries an advantage over their European counterparts, he says. Specific companies mentioned by Leggate as possible good buys include:
• Anadarko Petroleum: Recently made a major natural gas discovery in Mozambique, which could provide several LNG opportunities by 2020;
• Exxon: Not a growth company, but is buying back some of its own stock, so what’s left should increase in value;
• Marathon Oil: A top pick in the energy sector, with a large, stable cash flow that can be reinvested in unconventional oil recovery.
Leggate was guest speaker today at a luncheon hosted by the Davis, Miller, Roy Group of Merrill Lynch. —David Jacobs