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- On Monday, Exxon was removed from the Dow Jones Industrial Average, leaving Chevron as the sole energy company on the index.
- Exxon’s ousting was in part because of the oil giant’s poor performance relative to Chevron, analysts at Goldman Sachs said in a note last week.
- In a report published Monday, Goldman analysts offered up 10 alternative oil stocks that they said offered investors more value, from Chevron to ConocoPhillips.
- For more stories like this, sign up here for our weekly energy newsletter, Power Line.
In another sign of the shifting energy industry, Exxon was removed from the Dow Jones Industrial Average on Monday, leaving Chevron as the sole oil company on the index.
Behind the ousting was years of poor performance relative to Chevron, Goldman Sachs analysts said in a note last week. The bank has long been bearish on the Texas oil giant, citing low cash flow and weak margins in its downstream business.
Exxon was removed from the Dow along with Pfizer and Raytheon, and the companies were replaced by Salesforce, Honeywell, and Amgen.
On Monday, the bank reiterated its negative view of Exxon. Goldman analysts said that while they no longer see as much downside risk for owning Exxon in absolute terms — partly because they believe oil is set to soar in 2021 — there are other oil companies that offer “a more differentiated value proposition.”
Here are 10 companies the analysts say offer investors more value, across each segment of the industry.
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Coronavirus stock The bank’s top upstream picks
In the upstream segment, which includes oil-exploration and -production firms, the analysts favor Hess, Pioneer Natural Resources, Canadian Natural, and ConocoPhillips.
Their view on Hess relies on the company’s growth potential in Guyana, where Exxon (XOM) also has a presence.
“While we recognize Exxon is the operator and has executed well in finding/developing resources in the region, we believe investors can get greater leverage to Guyana as a percentage of the enterprise value through Hess, without the declines in the base assets that XOM is likely to experience,” they wrote in Monday’s note.
The bank favors ConocoPhillips because its stock price is set to follow the recovery in oil prices, they said. Meanwhile, Canadian Natural and Pioneer Natural Resources both have strong free cash flow, among other benefits, they said.
Coronavirus stock Goldman favors Chevron over Exxon
Among the global oil majors, which operate in all segments of the industry, Goldman Sachs prefers Chevron, BP, and the French multinational Total.
Chevron (CVX) has outperformed Exxon, the analysts said, adding that they “expect this alpha to continue over the next year,” citing a handful of metrics including cash flow.
“We believe the relative strength of CVX’s balance sheet is its key differentiating value proposition versus XOM for US investors that often have to decide between the two stocks,” they wrote.
The bank also favors BP, largely because of its pivot toward lower-carbon energy sources, such as renewables and biofuel.
Coronavirus stock Fuel demand is set to recover, benefiting refiners
In the segment of the industry focused on turning crude oil and gas into fuels and chemicals, the bank’s top picks are Phillips 66, Marathon Petroleum, and the Indian conglomerate Reliance Industries.
Refining margins are on track to recover after plummeting in the wake of the coronavirus pandemic, which collapsed demand for fuel, the analysts said. And investors can reap some of the benefits by buying Phillips 66, a big refiner that offers high returns, they added.
Meanwhile, Marathon Petroleum’s proposed sale of its gas-station chain Speedway makes it “uniquely positioned to return capital,” should the deal go through, the bank said.
Finally, the analysts favor Reliance Industries, the largest global energy company aside from Saudi Aramco, Saudi Arabia’s state oil company.
“In the core oil to chemicals business segment, its refining utilization should outpace Exxon,” the analysts said of Reliance.
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