Barclays picks the global stocks to buy in the ‘cheapest’ sectors — energy and mining

Published Wed, Aug 11 202110:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Barclays say the energy and mining sectors are trading at cheaper levels than the wider market, and have picked out European stocks to buy in both areas. The bank is overweight on both sectors. "They remain the two cheapest sectors, with strong EPS [earnings per share] momentum, and we are seeing further news on excess capital return with Q2 results," the analysts wrote in a research note released last week. The energy sector is at its "cheapest ever" valuation, according to the analysts, but they warned the low price is "unsustainable — it is simply too cheap given the strong fundamentals," they wrote. "Demand looks to remain strong given the high level of activity and reopening to occur over the summer months," the analysts said. The move toward greener fuels, or the so-called energy transition , is a "long and expensive task," Barclays analysts said, but conceded that the costs are now taken into account by company forecasts. The analysts added that there is "some evidence investors are discriminating within the sector – rewarding 'better' ESG stocks and punishing others." ESG refers to environmental, social and governance factors investors consider. Barclays produced several stock lists, including a "Value Basket," which its analysts are overweight on, describing it as "Very cheap, good current EPS momentum, key beneficiary of reopening." The analysts say their "Momentum Basket" is cheap and also rate it overweight. Spanish oil company Repsol and Austrian firm OMV appear in both baskets, while the momentum basket also includes French-American firm TechnipFMC . Shell is included in Barclays' value basket. The bank is overweight mining for its "highest ever" free cashflow generation, which is being paid back to investors, Barclays said. "We expect further payout with Q2 results," the analysts stated. "Iron Ore supply/demand remains tight, although new restrictions on China steel output has seen ore inventory pushed back onto the market, pushing price down in last few weeks. Copper pricing Remains," they added. Materials stocks in Barclay's overweight "Momentum Basket" include Anglo American and aluminum firm Norsk Hydro , while copper miner Aurubis and Heidelberg Cement appear in its Value Basket. Steel firm Voestalpine appears in both baskets.

Global commodities have seen a more than 20% slump compared to the same period last year, as reflected by the S&P GSCI Commodities index.

Jung Getty | Moment | Getty Images

Analysts at Barclays say the energy and mining sectors are trading at cheaper levels than the wider market, and have picked out European stocks to buy in both areas.