Cheap oil is here to stay, Goldman Sachs reckons, and prices are set to bottom over the next three quarters.
The Wall Street bank weakened its 2016 Brent Crude forecast to US$49 a barrel on Friday, down from US$62.
Heavy OPEC output and Iran’s potential to start selling millions of barrels next year are two factors behind the call.
The broker also expects further falls in equity valuations in the coming twelve months, before prices begin to pick up again in 2017.
“Fundamentals remain weak across the space, with dividends uncovered in 2015/16 - this is starting to be reflected in valuation,” a Goldman note said today.
Investors still willing to take a punt on the sector should look out for “high-quality, low-cost assets; upstream volume growth; capex flexibility; and attractive downstream exposure,” it added.
Based on this approach, the bank has pushed French giant Total up to a Buy and stayed positive on Italian major ENI.
BP (LON:BP.) has been raised to Neutral while Statoil (NYSE:STO) and Repsol (BME:REP) are on Goldman’s list of names to avoid.
Away from oil, Next (LON:NXT) impressed the market again yesterday with its figures.
Shares now trade at a lofty price of £78, too high for City broker Jefferies.
“We recognise that Next's high margins, cashflow and impressive management team deservessome valuation premium.
“However we struggle with the valuation here.”
It reckons shares are worth closer to 6,000p.
Argos owner Home Retail (LON:HOME) told investors on Thursday that August had been a tough month as sales fell again.
“The second quarter hasn’t been encouraging,” said Nomura analyst Sunita Entwisle. “But the stock still looks cheap.”
Shares ended the day at 140p yesterday but Entwisle reckons shares could almost double if management’s plan for Argos can be achieved.
Among the small caps, Northland reiterated its Buy rating on Botswana Diamonds (LON:BOD) this morning.
The firm said it has kicked off sampling work in Orapa with well-known joint venture partner Alrosa.
Work by Sula Iron and Gold (LON:SULA) to identify additional iron ore targets at its Ferensola mine in Northern Sierra Leone has been described as a “waste of precious funds” by broker Shore Capital.
CEO, Nick Warrell, on the other hand, was delighted by the recent mapping programme and looks set to continue adding value to the project.