Goldman recommends these energy stocks to play the decline in crude oil

Crude oil’s sharp decline this month sent energy stocks lower, but the pullback also presents an opportunity for investors to gain exposure to some high-quality companies, according to Goldman Sachs.

U.S. crude as well as global benchmark Brent closed at their lowest levels since December 2021 on Tuesday as bearish sentiment overwhelmed markets on concerns that future demand will weaken.

Crude oil futures rebounded somewhat on Wednesday, but the U.S. benchmark and Brent are still down about 8.5 percent and 10.4 percent, respectively, in September.

“For those looking to add energy to weakness, we recommend companies with high-quality asset bases, valuation support and strong balance sheets that can withstand a period of increased uncertainty/volatility,” Goldman analysts led by Neil Mehta told to clients in a note on Wednesday. .

Among the so-called US majors, companies with both exploration and production and refining and marketing operations, Goldman sees value in ConocoPhillips“especially as the company approaches its shareholder returns by the end of the year,” Mehta said. Conoco is down 9.7% this month and 11.5% for the year.

Wall Street analysts have an average stock price target of $139 on Conoco, implying a nearly 37 percent upside from Wednesday’s close of $102.57 a share, according to FactSet data.

Investment bank prefers Talos Energy when it comes to independent producers, “given strong earnings execution,” although the company recently announced that its CEO, Tim Duncan, has stepped down. Talos is 5.9% off this month and 24% off this year.

The Street has an average price target of $18 for Talos, suggesting a nearly 70 percent upside from Wednesday’s close of $10.84 per share, according to FactSet.

Among natural gas producers, EQT Corp is poised to have the highest free cash flow yield in 2026 based on Goldman’s forecast for mid-cycle natural gas prices of $3.50 per million BTU (MMBtu). EQT is slightly lower this month, down nearly 2%, and is now down about 15% this year.

While Goldman still sees risks for natural gas to weaken further in the near term, the spot price is “closer to the bottom” and growing energy demand and expanding use of liquefied natural gas should provide support in the coming years, he wrote Mehta.

EQT has an average price target of $43, based on the Street consensus among analysts, representing a 31% return from Wednesday’s close of $32.88 per share, according to FactSet.

— CNBC’s Michael Bloom contributed to this report.