Morgan Stanley Two Canadian stocks are among Morgan Stanley integrated oil analyst Devin McDermott’s top picks, as the firm’s daily research summary highlights,
“MS Research Analyst Devin McDermott highlights that amid high oil & gas prices, the sector’s commitment to capital discipline has shown through, driving a nearly doubling of FCF Q/Q to a record ~$60 B in 2Q. While demand concerns remain topical, he believes they are generally outweighed by supply risks. He adds that as the economy ultimately recovers, air travel resumes to more normalized levels, and China’s Covid lockdowns continue to ease, another leg of the demand recovery is still ahead. Devin expects this constructive commodity outlook, coupled with the industry’s new FCF and shareholder returns oriented value proposition, to continue supporting a re-rating in the sector’s still discounted valuation. Despite the Energy sector rallying ~50% YTD, he retains his Attractive industry view, with E&Ps and Integrateds/Majors (which combined represent ~75% of S&P500 Energy) trading at ~65% and ~55% discounts to the broader market, respectively. Amid rising economic uncertainty and tight supply chain conditions, Devin continues to prefer stocks with 1) Strong and/or improving FCF, supporting outsized shareholder returns; and 2) Scale and asset diversity to better manage inflation risks. Devin’s key picks include FANG (OW, $175 PT), OVV (OW, $64 PT), APA (OW, $54 PT), and COP (OW, $118 PT) in US E&Ps and XOM (OW, $107 PT), SU (SU CT OW, C$60 PT), and CVE (CVE CT OW, C$35 PT) in Integrated Energy and Majors