The international companies on Goldman Sachs' so-called Conviction Buy List can be affected by everything from shifting environmental regulations, fires, extreme weather and political upheaval, as well as volatile crude-oil and natural-gas prices.
There were five energy stocks on Goldman's list when it was first released, but Canadian Natural Resources (CNQ - Get Report) was expelled Jan. 7 because of a fire at the company's biggest production facility. The investment bank is maintaining its "buy" rating on the company.
New York-based Goldman Sachs issues the list of its favorite stocks each year, along with their price targets and the premium the target represents to their closing prices as of Dec. 29.Indicative of the unpredictability of the oil and gas industry, shares of another company on the list, Apache (APA - Get Report), got hit last Friday because political upheaval in Egypt may hurt the company's projects, while cyclones in Australia have temporarily halted production at its projects Down Under. Even President Barack Obama got into the act and may have soured some investors' view on the industry's prospects with his comments in his State of the Union speech Tuesday. He called for increased subsidies for renewable-energy sources, such as biomass and wind power. He said he'd like to see the existing subsidies for the oil industry eliminated, although he didn't specify which he was referring to. "I don't know if you have noticed, but they're doing just fine on their own," Obama told Congress, which must approve any reduction in oil-industry subsidies. "So instead of subsidizing yesterday's energy, let's invest in tomorrow's." On the positive side for the industry, the world is in the midst of an economic recovery and the prospect of oil passing $100 a barrel in 2011 is forecast by many economists. As a result, oil and gas drilling company stocks are up 7% this year and 25% over the past three months, while the S&P 500 Index is up 3.4% in 2011. Energy stocks have advanced 5.6% this year, according to Morningstar. Below are the stocks, in order of Goldman Sachs' projected share-price return potential over the first half of 2011, ranked from least to most. Each of the companies gets a "buy" rating.