There’s 'substantial’ value in these two Big Oil stocks, Morgan Stanley says

An engineer working at a power plant
Witthaya Prasongsin | Moment | Getty Images

Analysts at Morgan Stanley have picked global oil stocks that they believe are set to outperform the wider market in the next 12 months.

While U.S. oil firms have generally done better than the European majors in 2021, firms in Europe have a 12-month free cash flow yield of almost double their U.S. counterparts, Morgan Stanley said. A higher cash flow yield is attractive to investors because it indicates a firm is better placed to pay debts and dividends.

"European majors have usually been valued at a discount, but the gap is historically wide at the moment," the analysts wrote in a research note last week.

"European majors have a substantial latent value," they added, and picked the following two stocks: