Feature Article

We review our investment strategy and second-quarter results from the names on our Focus List.

With the ethylene and polyethylene up-cycle winding down, investors should shift their attention further down the petrochemical value chain.

Technical factors suggest that energy stocks could fare better in the back of the year.

Stepped-up drilling activity and declining break-even costs, coupled with weather-adjusted inventory trends, suggest that natural-gas prices will struggle to remain above $3 per million British thermal units for a prolonged period.

After OPEC and other oil-producing countries announced an “historic” production cut in fall 2016, our out-of-consensus outlook called for the recovery in US oil output to surprise to the upside and drag prices lower. This forecast has played out thus far and has become the consensus view. We lean against the crowd once more and explain why oil prices could recover to $50 per barrel or more later this year.

After updating our commentary and ratings for the more than 80 stocks in our International Coverage Universe, we continue to favor midstream names that offer exposure to volumetric growth stories and our top bets on renewable energy. All offer above-average yields that should juice investors’ total returns.

Although our outlook for oil prices and the US energy patch favors an overweight position in core midstream holdings, nimble investors can generate alpha in upstream names by buying when oil prices retreat to the low end of their range and taking some profits off the table when they recover. Timing these moves is easier said than done. We highlight our favorite upstream stocks and dream prices to help instill discipline on the buyside.

In this environment, we prefer midstream names that offer the best leverage to volumetric growth stories and have the balance sheet strength to pursue joint ventures with cash-strapped rivals. Not only do these MLPs pay generous yields that can improve your total return during periods of volatility, but the most recent down-cycle also prompted many midstream operators to take the necessary steps to put themselves on a more sustainable path by cutting their distributions and paying down debt. We highlight our favorites and dream prices for period of heightened volatility.