ASX energy shares are poised to finish the trading week on a stronger footing after the oil price rallied overnight.

But the dramatic recovery for these stocks from their bear market low may have run out of fuel!

Morgans is sounding the warning bell even as the WTI oil price surged by US$65 to US$27.66 a barrel in less than four weeks since crashing into negative territory. I suspect that’s a record bounce over the timeframe for the WTI benchmark.

The more relevant (to Australia) Brent crude price didn’t slip into negative, but it’s staged a pretty stellar 62% climb over the same period to trade at US$31.13 a barrel.

Running ahead of the market

“We remain long-term oil bulls, but it is hard to maintain this positivity towards the sector when key energy stocks so strongly outperform oil prices,” said the broker.

By its reckoning, the jump in Woodside Petroleum Limited (ASX: WPL) share price and Oil Search Limited (ASX: OSH) share price imply an oil price of around US$47 a barrel.

Meanwhile, the Santos Ltd (ASX: STO) share price will need an oil price of US$42 a barrel to justify its recovery.

The long road to recovery

“We view this level of market optimism as dangerous given not only the massive demand impact from Covid-19 restrictions, but also because of new macro risks emerging,” said Morgans.

“Key amongst these is the growing risk of a new Trade War breaking out between the US and China, with tensions escalating from the ongoing health and economic crisis.

“Even barring a new trade war, we expect oil demand loss (currently at an unprecedented c.30mb/d) will take multiple years to recover, with the market not yet in a position to accurately analyse all of the fallout.”

Going nowhere fast

The chance of oil prices jumping back to over US$40 a barrel looks pretty slim even as Goldman Sachs sounded a positive note on the commodity.

The broker believes that the oversupplied market is heading back towards a deficit next month, according to a report on Reuters.

Oil production cuts by OPEC and Russia will limit supply as demand picks up pace from the restarting of major economies like China and the US.

Oil price forecasts

While that means we may have seen the lows for oil, Goldman Sachs thinks oil prices may be stuck at current levels for a while. It’s forecasting US$30 a barrel for Brent and US$28 per barrel for WTI during the Northern Hemisphere summer months.

“We believe that the next stage of the oil market rebalancing will be one of range-bound spot prices with the most notable shifts being a decline in implied volatility as well as a continued flattening of the forward curve without long-dated prices rising yet,” said Goldman Sachs.

Here come the downgrades

Investors may have to wait a few years to see the oil price catch up to the share prices of our major energy stocks.

On that sombre note, Morgans lowered its medium- to long-term forecasts on the Brent oil price. This meant that the broker also had to downgrade its recommendation on Oil Search, Woodside and Santos to “hold” from “add”.

More reading

• 5 things to watch on the ASX 200 on Friday
• 5 things to watch on the ASX 200 on Thursday
• LNG spot price surge benefits ASX 200 shares
• 5 things to watch on the ASX 200 on Wednesday
• How many ASX shares should you have in your portfolio?

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. 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 Big bounce in these ASX stocks may be over before it began appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Z5cBIg

ASX 200 energy shares have been hit hard in 2020. First, there were concerns surrounding coronavirus which sent the S&P/ASX 200 Index (ASX: XJO) tumbling lower in late February. Then came an oil price war between Saudi Arabia and Russia which spooked investors even more and eventually sent the oil price into negative territory last month.

You might be looking at the markets and thinking now is not a good time to buy ASX 200 energy shares. However, I think it could be quite the opposite. Here are a couple of my top picks for energy companies that could be in the buy zone in 2020.

2 ASX 200 energy shares to buy today

I like the prospects for AGL Energy Limited (ASX: AGL) shares. AGL is one of the largest energy producers in Australia and I believe it’s in a strong competitive position.

The Aussie electricity market is largely dominated by AGL, EnergyAustralia and Origin Energy Ltd (ASX: ORG). The AGL share price has plummeted 21.28% lower this year but I feel it may have been oversold.

Sure, the oil price war has hurt most ASX 200 energy shares. However, east coast electricity prices remain high, despite the ACCC recommending further intervention. These ongoing high prices could help stabilise FY20 earnings despite potentially lower volumes.

Another issue affecting the sector is less commercial energy use. COVID-19 restrictions have forced many employers towards a remote working model which means less energy consumption by businesses in our cities. However, this also means higher residential energy use which could help to balance things out for AGL.

Aside from AGL, I also like the look of Origin Energy. Given what’s happening to oil prices and the supply-demand dynamics, I think investing in the ASX 200 oil producers is a risky bet. There’s a lot of uncertainty surrounding oil and, as such, I feel Aussie utility companies could be a better option right now. As a long-term investor, I’m happy to trade some potential upside for the defensive qualities I see in energy ‘gentailers’ like AGL and Origin.

I think Origin is in a similar position to AGL right now. Given we’re investing for the long-term, I also think both AGL and Origin could benefit from an increase in renewable energy investment. That means, moving forward, AGL and Origin could tick all the boxes as strong dividend shares with solid medium and long-term outlooks.

Foolish takeaway

Investing in ASX 200 energy shares is certainly not for everyone. Diversification is key, which means that AGL and/or Origin shares could form part of your broader portfolio construction. I would say it’s still a relatively speculative play right now which means I wouldn’t be going all in. However, I do feel there are long-term rewards on offer for investors willing to roll the dice with ASX 200 energy shares in 2020.

More reading

• Want to invest like Warren Buffett? Buy and hold these ASX 200 shares
• Broker tips 10 ASX 200 shares for a post-coronavirus recovery
• These ASX 200 shares just crashed to multi-year lows
• 5 things to watch on the ASX 200 on Friday
• Is this ASX 200 REIT a bargain right now?

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. 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 Got $2,000? Here are 2 ASX 200 energy shares to buy today appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2LrgDCU

The head of research services at broker Bell Potter recently released 10 ASX 200 shares that analysts tip for a post-coronavirus recovery. All the stocks mentioned have a market capitalisation of more than $1 billion and boast strong balance sheets that could see them recover from the pandemic.  

Aristocrat Leisure Limited (ASX: ALL)

Aristocrat is a gambling machine manufacturer that has a strong recurring revenue stream from leasing machines to its customers. The company also makes revenue through outright sales of gaming machines and monetisation of online casinos and gaming.

Analysts are optimistic on the medium-term growth of Aristocrat’s land-based operations, with the company having a strong presence in the US gaming industry. In addition, the company’s online operations are a growing market that provides Aristocrat with flexibility during the pandemic.

ANZ Banking Group (ASX: ANZ)

Analysts expect that economic growth post-pandemic should provide ANZ with a solid lift in profitability. The bank is currently providing financial assistance packages for its small business and retail customers.

BHP Group Ltd (ASX: BHP)

BHP boasts a strong balance sheet and low-cost operations with earnings coming from iron ore, copper and coal. Analysts are optimistic that BHP is well positioned during the pandemic, with improving commodity prices expected to benefit the company in the future.

Flight Centre Travel Group Ltd (ASX: FLT)

The pandemic has created an unprecedented challenge for travel and leisure companies like Flight Centre. The company has completed a $700 million equity raising and reduced its annualised operating expenses by $1.9 billion. As a result, analysts estimate that the company can survive for 15 months without revenue and post a recovery following the pandemic.  

Macquarie Group Ltd (ASX: MQG)

Analysts are also optimistic on Macquarie Group to recover strongly post-pandemic. The investment bank has the ability to switch between market-facing and annuity-style operations, which makes it an attractive investment during and after the coronavirus pandemic.

Mirvac Group (ASX: MGR)

Mirvac owns and operates a commercial property portfolio that is exposed to office, retail and industrial properties, which account for 59% of group earnings. The coronavirus pandemic is expected to impact retail and other commercial rental incomes for the next 2 years. Despite this, analysts believe that Mirvac will recover post-pandemic with a secure income stream.

Origin Energy Limited (ASX: ORG)

Origin’s 2 main areas of operation are the energy markets and integrated gas, which contribute 44% and 56%, respectively, to group earnings. The energy market is expected to recover post-pandemic and analysts are optimistic that Origin energy will see a strong resurgence in energy and fuel demand.

Premier Investments Limited (ASX: PMV)

Premier Investments is the owner of prominent retail brands such as Smiggle, Peter Alexander and Just Jeans. Despite the pandemic causing havoc among retailers, Premier Investments is tipped to recover strongly. Analysts cited the company’s stance to pay adjusted rent and strong retail presence as factors that will help Premier Investments emerge stronger, post-pandemic.

Qantas Airways Limited (ASX: QAN)

With the pandemic bringing domestic and international travel to a grinding halt, airlines like Qantas have been some of the most adversely impacted companies. Despite the toll the pandemic has had on the company, analysts think that Qantas could see a protracted recovery. Analysts believe that Qantas can survive for up to 12 months with cost reductions and available liquidity of $4 billion.

Worley Ltd (ASX: WOR)

Worley is a global provider of engineering and project management services for the energy, chemicals and resource sectors. The pandemic has presented the company with a challenging operating environment, especially given the collapse in oil price. Analysts believe that the company will recover post-pandemic as activity levels improve.

Foolish takeaway

In my opinion, Bell Potter provides high quality research and analysis, However, just because analysts think these shares could recover doesn’t mean that investors should jump the gun and start buying. As we have seen, the coronavirus pandemic is an evolving situation and nothing is certain.

I think a prudent strategy would be to compile your own watchlist of champion stocks and wait for positive price action before making an investment decision.

More reading

• Got $2,000? Here are 2 ASX 200 energy shares to buy today
• 4 top ASX 200 shares for blue chip investors
• Got $5,000 to spend? Here are 5 ASX shares you can buy today
• Goldman Sachs names 5 reasons iron ore prices won’t crash
• Looking for dividend income? Try these 3 ASX shares

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Premier Investments Limited. The Motley Fool Australia has recommended Flight Centre Travel Group 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 Broker tips 10 ASX 200 shares for a post-coronavirus recovery appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/3cwPydm