From soaring commodity prices to the "multi-billion dollar" hydrogen opportunity, analysts at Morgan Stanley and Bernstein name their top stocks to navigate the booming energy sector. The sector has been one of the few bright spots in a year when the broader stock market has taken a severe beating. Energy is one of just two sectors on the S & P 500 that are in positive territory this year, Bank of America said —up 56% year to date. And the bank is advising investors to "stay long" the sector. "Our commodity strategists expect that a sharp contraction in Russian oil exports could trigger a full-blown 1980s-style oil crisis … pushing Brent well past $150/barrel, up from the current [price of around] $120/barrel," Bank of America's strategists, led by Savita Subramanian, said on Jun. 1. "With China reopening, peak driving season, and favorable positioning/valuations, we see more upside." The sector has benefited from soaring crude oil prices this year amid a rebound in consumption and supply disruptions as a result of Russia's invasion of Ukraine. Gasoline prices, meanwhile, have also hit record highs. Morgan Stanley noted that Asian energy producers are benefitting from this, producing more gas compared to their global peers. This growth is supported by rising domestic gas prices in India, Thailand and other parts of Asia, the bank's analysts, led by Mayank Maheshwari, said on Jun.6. It's top overweight-rated picks in this space include Australia's Woodside Energy , Thailand's PTT Exploration and Production and China National Offshore Oil Corporation . The bank noted that Woodside's "strong balance sheet" gives the company the flexibility to fund growth, distribute excess capital and prepare for the energy transition. The bank has a price target of 40 Australian dollars ($28.80) on Woodside, which closed at around 32.90 Australian dollars on Jun. 7 — an implied upside of 21.6%. Morgan Stanley also likes PTT Exploration and Exploration for its "good quality" growth. The bank expects the company to deliver compounded volume growth of 13% into 2024 and sees good upside in dividends and earnings growth. Meanwhile, China National Offshore Oil Corporation expects compound production volume growth of 6.4% into 2025, and Morgan Stanley believes it should be able to reap the full benefits of strong oil prices. Morgan Stanley's price target of 14 Hong Kong dollars ($1.80) on the stock implies a 15.7% upside to its closing price of 12.1 Hong Kong dollar on Jun. 7. 'Multi-billion dollar' hydrogen opportunity "Few dispute that hydrogen is a multi-billion dollar growth opportunity; the burning question for investors, rather, should be whether returns will be distributed evenly over the value chain," Bernstein's analyst Nicholas Green said on Jun. 6. "As with many commodity-like growth industries, we suspect the hidden pocket of opportunity lies with 'picks and shovels': the capital goods and services needed to make the hydrogen economy work." Green noted that capital goods are "indispensable to the hydrogen" industry, given the sector's highly electric-intensive nature, complex processes and unique characteristics as a fuel. ABB and Aveva are among the stocks which Bernstein thinks are "best positioned" to play the growth in hydrogen. Both stocks are rated overweight by the bank. ABB , a Swedish manufacturer of factory robots and industrial drives, offers a broad range of products across the full hydrogen value chain from production, transportation, storage to consumption, Green said. He added that company has long-standing expertise in the electrification and automation of energy-intensive process industries. In addition, the company has expertise in controlling heavy electrical loads with precision, and is using this to touch most parts of the hydrogen value chain, according to the bank. It has a price target of $40 on the stock, which closed at $31.60 on Jun. 6, representing a potential upside of 26.6%. Bernstein also likes U.K. software firm Aveva , a leading 3-D visualization platform for heavy process industries which is already looking to serve so-called "grey," "blue" and "green" hydrogen plants . The bank's price target of 3,500 pence ($44) represents a potential upside of 57% to its closing price of 2,230 pence on Jun. 6.
Gas prices over $7.00 a gallon are displayed at a Chevron gas station on May 25, 2022 in Menlo Park, California.
Justin Sullivan | Getty Images
From soaring commodity prices to the "multi-billion dollar" hydrogen opportunity, analysts at Morgan Stanley and Bernstein name their top stocks to navigate the booming energy sector.