Goldman Sachs has highlighted the ongoing potential in the oil and gas sector, which has outperformed the broader market, with the State Street Energy Select Sector SPDR ETF (XLE) gaining 45% year to date compared to a 13% rise in the S&P 500. The surge in oil prices, driven by geopolitical tensions in the Middle East, has led to increased investor interest in energy stocks.
Analyst Neil Mehta noted that investors are now focusing on value, identifying stocks that offer above-average total returns while trading at below-average multiples for 2028. Among the recommended stocks, Devon Energy stands out with a 33% gain this year and a compelling valuation, offering a 14% free cash flow yield. Mehta has set a price target of $55 for Devon, indicating a 12% upside.
Expand Energy is also noted for its attractive valuation relative to peers, with a 10% free cash flow yield and a 2.3% dividend yield. HF Sinclair, despite a 131% year-to-date increase, is seen as undervalued due to leadership uncertainties, with a price target of $114 suggesting a 7.5% upside.
Lastly, ConocoPhillips is projected to see significant free cash flow growth by 2029, with a price target of $146, reflecting a 6% upside. Overall, Goldman Sachs' analysis suggests that there are still valuable opportunities in the energy sector for investors looking for dividend-paying stocks