In the wake of the OPEC agreement that stunned the market on Wednesday, oil prices already have surpassed the $50 mark. Traders viewed the deal as a serious effort by OPEC to rebalance the oversupplied oil market and there are opportunities for investors, especially in the S&P 500 energy sector, Jefferies said.
"The OPEC announcement is a significant swing factor for inflation expectations and S&P 500 earnings assumptions," wrote Jefferies chief global equity strategist, Sean Darby, in a note on Thursday.
OPEC agreed on Wednesday to cut production by 1.2 million barrels a day, capping production at 32.5 million barrels a day, effective Jan. 1, 2017. This is the first limit on output in eight years as the cartel looks to rebalance the market and boost prices.
Jefferies' Darby said the energy sector provides the bulk of change in forecast earnings over the next year and "hence has some of the most positive earnings momentum."
Furthermore, the move in oil prices comes as President-elect Donald Trump prepares to take office and looks to enact his policies and fiscal stimulus plan, which Darby noted has altered inflation expectations in the U.S.
"We would not want to be short 'inflation' areas of the equity market in 2017," Darby wrote. "Pricing power trumps volume and investors should be aligned to sectors that have a high correlation to break-even inflation rates."
Analysts also believe that U.S. producers will be the winners of this OPEC deal. Darby and his team noted that U.S. energy companies have high operational and financial leverage, which means that "companies stand to benefit from a significant change both in profits and solvency (credit) scores."
Analysts at Bank of America Merrill Lynch echoed that sentiment, as they see an immediate positive impact on the outlook for U.S. onshore drilling and completion activity should oil prices move above $50 a barrel.
"We would expect completion activity to ramp up first as operators move to complete drilled but uncompleted wells as a quick way to boost production and generate cash flow in the face of rising oil prices," the analyst team at Bank of America Merrill Lynch wrote in a note Wednesday.
Bank of America Merrill Lynch raised their price targets on Schlumberger (SLB) , Halliburton (HAL) , Helmerich & Payne (HP) and Nabors Industries (NBR) . Jefferies, meanwhile, has buy ratings on Chevron (CVX) , Schlumberger, Halliburton, Anadarko Petroleum (APC) , Pioneer Natural Resources (PXD) , Valero Energy (VLO) , Devon Energy (DVN) , Marathon Petroleum (MPC) , Williams Cos. (WMB) , Noble Energy (NBL) , Marathon Oil (MRO) , Tesoro (TSO) and Range Resources (RRC) .