The ASX energy sector may represent one of the last value buys on the S&P/ASX 200 Index (Index:^AXJO) if oil demand stages a record bounce in 2021.

The bullish prediction was contained in the International Energy Agency’s monthly report released yesterday, according to Market Watch.

While the IEA is forecasting global demand for crude to plunge by 8.1 million barrels a day in 2020, demand next year will rebound by a record 5.7 million barrels a day.

One of the few value sectors left standing?

The economic shutdown forced upon us by the COVID-19 pandemic pushed demand for crude off a cliff – along with ASX oil-exposed stocks.

These stocks, such as the Woodside Petroleum Limited (ASX: WPL) share price and Oil Search Limited (ASX: OSH) share price, may have recovered some of their big losses since the March bear market low, but they are still underperforming the ASX 200.

In fact, they are also lagging behind ASX big bank stocks like Westpac Banking Corp (ASX: WBC) since the start of this fateful year.

The banking sector enjoyed a re-rating as bargain hunters rushed to buy the big banks. Oil stocks may represent a value play too if oil demand comes roaring back, like the IEA expects.

Oil demand recovering – somewhat

Early recovery in oil demand in parts of the world is giving hope to the bulls. China’s demand for the commodity in April is nearly back to what it was for the same month last year.

India also recorded an increase in May despite its big lock-down of its economy to stem the spread of the virus.

Meanwhile, OPEC and Russia’s agreement to extend production cuts through to July is also helping the recovery. The Brent oil price jumped to over US$40 a barrel from under US$20 a barrel in April.

Consolidating befor a recovery

If the tailwinds persist, the IEA believes the market will stabilise in the second half of 2020 before rebounding next year.

But it also warned that the recovery will be patchy with the pace and success of different countries in restarting their economies still looking highly uncertain.

I held a more downbeat outlook on the recovery prospects for the sector given the large stockpiles of crude and the fact that international air travel looks to be off the cards till 2021, at the earliest.

Foolish takeaway

The effective grounding of planes means a 3 million-barrel drop for the sector in 2020 before the IEA estimates a modest 1 million-barrel recovery in 2021.

I won’t be changing my underweight position in the sector despite the better than expected forecast from the IEA. But I think having a small exposure to the potential oil recovery (assuming the IEA is spot on – and that’s quite a big assumption) isn’t a bad idea.

But the stock I would be more drawn towards for the exposure to this thematic is oil and gas engineering group Worley Ltd (ASX: WOR).

It follows the saying that you are better off investing in the guys supplying the shovels during a mining boom than the miners themselves.

More reading

• Top brokers name 3 ASX 200 shares to buy today
• ASX 200 down 0.1%: Carsales update impresses, a2 Milk surges higher
• Is $1,000 invested in AGL Energy shares a smart investment?
• 3 reasons to buy ASX 200 shares right now
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Brendon Lau owns shares of Westpac Banking and WorleyParsons Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post What a record rebound in oil demand in 2021 means for ASX energy stocks appeared first on Motley Fool Australia.

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Many of Australia’s top brokers have been busy adjusting their financial models again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX 200 shares are in the buy zone:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of UBS, its analysts have retained their buy rating and NZ$22.00 (A$20.64) price target on this infant formula company’s shares. UBS believes there is some upside risk to its earnings guidance for FY 2020. In addition to this, it suspects there could be a new product launch in the medium term. It feels this could be the catalyst to taking its shares higher again. I agree with UBS on a2 Milk Company and think it would be a great buy and hold investment.

Cochlear Limited (ASX: COH)

A note out of the Macquarie equities desk reveals that its analysts have retained their outperform rating and lifted the price target on this hearing solutions company’s shares to $208.50. According to the note, the broker has been busy surveying audiologists. Its survey found that Cochlear has the strongest portfolio of implantable products. And while it notes that the pandemic has reduced patient volumes materially, it believes volumes will rebound when the crisis passes. And with Advanced Bionics recalling competing devices, it expects Cochlear to grow its sales quicker than the industry average. I think Macquarie is spot on and Cochlear would be a top option.

Crown Resorts Ltd (ASX: CWN)

Analysts at Morgan Stanley have upgraded this casino and resorts operator’s shares to an overweight rating with an improved price target of $12.00. According to the note, due to international travel uncertainty, it believes the gaming market will be reliant heavily on domestic tourism. Morgan Stanley thinks that the opening of Crown Sydney later this year will give it the edge over the competition and allow it to win market share from rivals. I think Morgan Stanley makes some very good points, but I’d rather wait and see how the company fares in the coming months before jumping in.  

More reading

• ASX 200 down 0.1%: Carsales update impresses, a2 Milk surges higher
• Why a2 Milk, Carsales, Fisher & Paykel Healthcare, & Starpharma are surging higher
• Is $1,000 invested in AGL Energy shares a smart investment?
• How to become wealthy by investing $1,000 into ASX shares
• 3 reasons to buy ASX 200 shares right now

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Cochlear Ltd. and Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Top brokers name 3 ASX 200 shares to buy today appeared first on Motley Fool Australia.

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