Oil`s recovery may be short-lived, but some analysts believe now is the time to get back into energy stocks.
"Stop trying to pick the bottom in oil and recognize that today is actually an opportunity to create a position in oil," Gaurav Sodhi, resources analyst at research service Intelligent Investor, told CNBC.
"The impact of the oil price has been well and truly priced into every major oil producer around the world. Oil service companies have been hammered," Sodhi said. "Equity valuations already infer current oil prices. There`s a small chance prices may fall further but I`d say that there`s a very good chance that in five years` time we`re going to see prices at USD 80 or higher."
Brent oil prices have managed to rally over USD 61 a barrel, the highest since December, off the lows under USD 49 touched last month, but they remain sharply down from their level over USD 115 a barrel in mid-June of last year.
Even though he`s positive on oil stocks, Sodhi isn`t necessarily positive on oil in the near-term. "There`s been an awful lot of oil in storage and at some point this is going to have to be unwound. So we could be awhile from the bottom. That doesn`t scare me at all," he said.
He`s upgraded Australia`s Origin and Santos, taking their high debt piles as a positive as they will benefit relatively more once oil prices rise. He`s also positive on mining giant BHP as it adjusts its oil investments.
Sodhi isn`t alone in seeing opportunity in oil equities. Goldman Sachs has closed its underweight position in Asian energy stocks.
"They are now pricing in our expectations of long-dated oil prices," Goldman said in a note Friday. Regional oil plays are implying a long-dated Brent oil price of USD 65-USD 70 a barrel, in line with the bank`s USD 70 a barrel forecast and the generic 24-month futures contract pricing of USD 70, it said.
The sector stocks are also trading at reasonable valuations, with the enterprise value-to-Ebitda (earnings before interest, taxes, depreciation and amortization) ratio coming in below the 10-year average, it said.
To be sure, Intelligent Investor`s Sodhi notes that the entire oil sector isn`t an investor playground. Amid a glut of oil inventory, tanker prices and lease rates have doubled over the past 18 months, he noted.
"There are listed companies that control the tankers --that make tankers and lease them. Some of those, [such as] Frontline, have doubled in the last few months. I think that game has been well and truly played," he said.
The New York-listed shares of Frontline, which operates a Very Large Crude Carrier (VLCC) fleet, closed at around USD 2.96 on Friday after spiking as high as USD 5.05 in January, up from lows around USD 1.21 in November of last year.
-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1
Copyright 2011 cnbc.com
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