Strategist picks 3 European oil stocks that could outpace Exxon and Chevron next year

Published Thu, Nov 26 20201:56 AM EST

Sam Meredith @in/samuelmeredith @smeredith19

Denmark's Saxo Bank believes the long-term outlook for oil and gas companies appears bleak, but that's not to say there isn't a strategy for investors to consider over the next 12 months. It comes as the bank's head of equity strategy says energy stocks have outperformed global equities by 24% since the market first received encouraging Covid-19 vaccine news from Pfizer-BioNTech on Nov. 9. Saxo Bank's Peter Garnry said this underscored the perception that investors were positioning themselves for a market normalization in 2021. Oil and gas companies "are assets you just can't touch if you believe in ESG, which is becoming a bigger and bigger part of the asset management industry (and) that's holding back valuation on oil and gas industries," Garnry told CNBC's "Squawk Box Europe" on Wednesday. "But I think there is a tactical play here." ESG, or environmental, social and corporate governance, refers to investments made with an aim to contribute to a better environment, society or workplace. Oil and gas companies are under huge pressure from shareholders, investors, climate activists and corporate partners to drastically shift toward clean energy transitions. The IEA has previously warned that while fossil fuels may help to drive the companies' near-term returns, a failure to address growing calls to reduce greenhouse gas emissions could threaten their "social acceptability and profitability" over the long term. Saxo Bank's Garnry said governments in Europe, the U.S., and most of Asia will all eventually come to prioritize social stability over financial stability, and this is likely to mean more government intervention and more regulation. As a result, he believed the long-term perspective for oil and gas stocks was "very dim." "I would not recommend our clients or any investors to be overweight energy stocks … for the long run. But certainly, right now and next year, there is a tactical play in this industry but otherwise I think it increasingly becomes stranded assets," Garnry said. "I think there is an interesting investment theme coming up and that is you can see Exxon Mobil and Chevron, they are really choosing the old classical way, like: 'We will stick to our old business. We will bet on acquisitions and continue to invest in oil and gas assets.'" By comparison, Garnry said European oil majors Total, Shell and BP seemed to be more willing to "play a part" in the so-called green transformation. "That, I think actually makes European oil companies much more interesting. If you want me to choose, I would choose the European oil majors over the U.S.," Garnry said.

A Surgutneftegas worker near pumpjacks in Surgut Region of the Khanty-Mansi Autonomous Area - Yugra, in the West Siberian petroleum basin.

Alexei Andronov | TASS via Getty Images

Denmark's Saxo Bank believes the long-term outlook for oil and gas companies appears bleak, but that's not to say there isn't a strategy for investors to consider over the next 12 months.

It comes as the bank's head of equity strategy says energy stocks have outperformed global equities by 24% since the market first received encouraging Covid-19 vaccine news from Pfizer-BioNTech on Nov. 9.

Saxo Bank's Peter Garnry said this underscored the perception that investors were positioning themselves for a market normalization in 2021.

Oil and gas companies "are assets you just can't touch if you believe in ESG, which is becoming a bigger and bigger part of the asset management industry (and) that's holding back valuation on oil and gas industries," Garnry told CNBC's "Squawk Box Europe" on Wednesday.

"But I think there is a tactical play here."