The crash in oil-exposed ASX shares is creating a near-term chance to make a quick buck, according to Morgan Stanley. Here’s why…
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The crash in oil-exposed ASX shares is creating a near-term chance to make a quick buck, according to Morgan Stanley.
Crude oil prices tumbled last week on fears of an oversupply of the commodity.
But the broker believes the sell-off is a “tactical opportunity” given that current share prices are implying around a US$50 a barrel oil price based on its forecasts.
ASX oil shares staging a turnaround today
The market seems to be buying the good news. ASX energy shares are among the top performing sectors on the S&P/ASX 200 Index (Index:^AXJO).
It also helps that the Brent crude benchmark rebounded by 2.7% over the weekend to US$64.48 a barrel.
The Woodside Petroleum Limited (ASX: WPL) share price added 1.8% to $24.54, Oil Search Ltd (ASX: OSH) share price rallied 2.5% to $4.33 and Origin Energy Ltd (ASX: ORG) share price jumped 3.3% to $4.74 at the time of writing.
Not all ASX energy shares are a buy
There’s probably more room for ASX energy shares to run given the magnitude of the recent correction, but this may not be the case for all.
For instance, some might think the underperforming Beach Energy Ltd (ASX: BPT) share price should be on the buy list. But Morgan Stanley doesn’t believe so due to production concerns at Western Flank.
“We think Western Flank will be doing well to remain flat over the outlook,” said the broker.
“That said, Beach is becoming a more diverse company and for three of its other assets we see them as more material to the valuation over time.
“Any significant pullback could be an opportunity but at current levels we think the risk-reward is balanced.”
Key ASX buy picks to watch
Morgan Stanley is recommending the Beach share price as “equal-weight”. Instead, it thinks the underachieving Karoon Energy Ltd (ASX: KAR) share price makes a better buy.
“Karoon Energy hasn’t traded as well in 2021 after a strong half towards the end of 2020,” explained Morgan Stanley.
“That said, we think our investment thesis is on track, and the discount to DCF should narrow as the company delivers on its growth programme – it remains a key Overweight call.”
Just remember that the speed of the pullback in the oil price doesn’t change the dimming longer-term outlook for fossil fuels.
This may present a tactical (or short-term) buying opportunity, but questions remain over how the sector will transition to a clean energy future.
Where to invest $1,000 right now
*Returns as of February 15th 2021
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The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.