Energy is Wells Fargo’s most favorable sector: integrated oil, midstream energy are top subsectors

Energy (NYSEARCA:XLE) is the most favorable sector, with integrated oil and midstream energy as the most favorable subsectors, according to Wells Fargo’s GSR.

Wells Fargo Investment Institute’s Global Securities Research team published a list of what their analysts consider the most favorable sub-sectors within the S&P 500 (SP500).

Analysts said they expect energy’s (XLE) long-term fundamentals to remain solid as macroeconomic volatility continues.

“Energy companies continue to prioritize capital discipline and are delivering competitive shareholder returns through dividends and share repurchases,” the report said. “We believe that recent consolidation throughout the sector has improved capital efficiency, valuations are reasonable, and company balance sheets have improved notably over the past few years.”

Analysts favor integrated oil companies due to their scale, financial flexibility, and diversified exposure across the energy value chain, they said. High-quality midstream (UMI) companies are also favored.

On the other hand, refiners (CRAK) are unfavored “as we expect refining margins to remain highly volatile due to global capacity additions and choppy global product demand.”

Wells Fargo oil and gas exploration and production (XOP) and integrated oil and gas (PXJ) picks:

• ConocoPhillips (COP) – Dividend yield: 2%; Estimated 12-month EPS: $8.39; 12-month P/E: 13.6x
• Chevron Corp. (CVX) – Dividend yield: 4.3%; Estimated 12-month EPS: $11.66; 12-month P/E: 12.9x
• EOG Resources Inc. (EOG) – Dividend yield: 2.7%; Estimated 12-month EPS: $11.29; 12-month P/E: 11.8x
• Halliburton Co. (HAL) – Dividend yield: 2.2%; Estimated 12-month EPS: $3.39; 12-month P/E: 9.2x
• Kinder Morgan Inc. (KMI) – Dividend yield: 4.9%; Estimated 12-month EPS: $1.23; 12-month P/E: 19.1x
• Phillips 66 (PSX) – Dividend yield: 3.3%; Estimated 12-month EPS: $10.61; 12-month P/E: 13.1x
• Shell Plc (SHEL) – Dividend yield: 4%; Estimated 12-month EPS: $8.03; 12-month P/E: 8.5x
• Schlumberger Limited (SLB) – Dividend yield: 2.4%; Estimated 12-month EPS: $3.92; 12-month P/E: 11.6x
• Williams Companies Inc. (WMB) – Dividend yield: 3.8%; Estimated 12-month EPS: $2.04; 12-month P/E: 24.3x
• Exxon Mobil Corp. (XOM) – Dividend yield: 3%; Estimated 12-month EPS: $8.30; 12-month P/E: 15.0x