Goldman Sachs said in a research note Thursday the recent energy sector pullback should be viewed as a reason to buy since that strategy has worked well since late 2020. Thinking along those lines, we did add to one of our three oil exploration and production (E & P) stocks twice this month. However, we’re currently debating whether we need that much exposure to an industry so tied to the economy. West Texas Intermediate crude and energy stocks have been under intense pressure in recent weeks on the back of heightened recession fears. While debated for months, worries about the economy and how it might impact oil demand have increased following fallout from the banking crisis and concern about the Federal Reserve hiking interest rates too much. @CL.1 YTD mountain West Texas Intermediate crude YTD performance At a high level, Goldman concedes that recession risks are “more elevated than in the past.” How could they not be following the second and third largest bank blowups in U.S. history and the ripple effect across the financial industry. However, Goldman only puts 35% odds on a recession, leading analysts to reason that an economic hard landing won’t likely break oil’s buy-the-dip streak. The Goldman note pointed out that six major energy pullbacks — three in 2021 and three in 2022 — each translated into “a meaningful buying opportunity.” But, given the elevated uncertainty, the analysts are focused on what they view as quality producers with attractive valuations, meaning those with “strong balance sheets, deeper inventories and lower cost assets.” Based on that criteria, Goldman has Pioneer Natural Resources (PXD) on its “Americas Conviction List” with a buy rating. Similar to Goldman, the analysts at Citi also like Pioneer, saying it’s in a position to realize increased well productivity starting in the second half of 2023 and see increased capital efficiency into 2023. In research note Thursday, Citi upgraded PXD to a buy rating and boosted its price target to $210 per share from $193. The stock closed Thursday just above $189 per share. The Club likes and owns Pioneer, too. It’s the E & P we’ve been buying lately — adding 25 shares on March 13 and 25 more shares Monday . Both were small buys in down markets, bringing our total ownership position to 175 shares for an overall portfolio weighting of 1.3% as of Thursday’s close. The Goldman and Citi updates are certainly welcome as they clearly support our view that Pioneer’s low crude break-even levels and strong cash flow profile are supportive of continued shareholder returns, especially should energy demand rebound from current levels. As for our two other E & P stocks, we’re leaning toward booting Devon Energy (DVN) and keeping Coterra Energy (CTRA), which we bought more of in early February on a collapse in natural gas prices. Both of them carry less than a 1% weighting in our portfolio. Coterra, unlike the others, is about 50/50 oil and nat gas. Influencing our inclination to…
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