Berenberg strategists are advising investors to consider energy stocks as a potential bargain in today’s market, highlighting their historically low valuations compared to the broader market. According to the German investment bank, the global energy sector is currently trading at record low valuations, reminiscent of only three other times in the past 40 years. In each of these instances, investors who bought into oil and gas stocks saw significant outperformance, with returns averaging over 100%.
Beyond attractive valuations, Berenberg also points to strong fundamentals supporting the energy sector, including high levels of cash generation and solid balance sheets. The bank believes that this cash generation will fuel share buybacks and ultimately lead to increased shareholder returns. Additionally, amidst geopolitical tensions impacting global oil supplies, energy stocks are seen as a potential hedge against geopolitical risk, as tight energy markets are expected to support oil prices and boost earnings for the sector.
For investors interested in increasing their exposure to energy, Berenberg has identified five top picks: Shell, TotalEnergies, Harbour Energy, Saipem, and Energean. These stocks, which are traded in the U.S. either over the counter or on an exchange as dual-listed shares, are recommended by the bank for their combination of attractive valuations and strong fundamentals. Overall, Berenberg sees energy stocks as a compelling investment opportunity in today’s uncertain market environment.