We want to slowly add exposure to energy. We have already exposure to refiners (Valero Energy which has been a very profitable trade so far), but we want to get exposure to E&P to benefit from a potential upside move in oil prices if dynamics change this year.
One way to get exposure to energy with high correlation to oil prices is through drillers but we think the risks here are too high. Instead we go for E&P.
CNOOC and Statoil are two E&P companies on our top alpha picks lists (see PDF from earlier today). In the end we are going with CNOOC
Shares are down 19% in 2015 as lower oil prices have reduced revenue by 33% Strong cost execution has preserved operation margins making CNOOC able to benefit from a change in oil prices
Oil supply and demand dynamics could change as Saudi Arabia’s effective policy in lowering oil prices is taking its toll on US producers. With demand still rising 2016 could see a rebound in prices.
Management and risk description
CNOOC is among top Asia picks driven by very attractive valuation, relative strength against peers in addition to ROIC on par with WACC. We expect ROIC to expand in 2016 on capex cuts and higher oil prices
Buy 00883:xhkg at market with trailing stop price 7.29 and steps of 0.07
Key risks: falling oil prices, weaker China macro,
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