Zhitong Finance learned that in a US stock strategy report, analysts at Morgan Stanley raised the energy sector's stock rating to “increase” because the bank's earnings forecast for the energy sector was revised due to revisions to crude oil price forecasts, and the wide range of profit revisions made, and the valuation was also convincing. Since this year, the performance of energy stocks compared to the S&P 500 index has lagged behind the price of Brent crude oil. Morgan Stanley commodity strategist Martijn Rats said he raised his Brent crude oil price forecast to $90 per barrel for the third quarter “in view of the gradual tightening of the balance between supply and demand”.

Morgan Stanley analyst Michael Wilson wrote: “This view of commodities, along with revisions affecting relative earnings, strong breadth, and compelling valuations (8th percent of EV/EBITDA's historical level) show us that the difference between oil prices and the industry's relative performance may be reduced by energy stocks catching up.”

Furthermore, the industry's free cash flow margin is well above the historical average (around 4%), which is around 10%. The ratio of net debt to EBITDA is less (about 1%) than its long-term operating rate of nearly 1.5%. Compared to history, hedge funds' net exposure to energy stocks is also low, at only the 17th percentile. Furthermore, since 2020, the industry has contributed more (21%) to S&P earnings changes than any other industry. This was followed by technology stocks, accounting for 18%, financial stocks accounting for 17%, and industrial stocks accounting for 14%.

Morgan Stanley's North American energy research team recommended ConocoPhillips (COP.US), Devin Energy (DVN.US), Occidental Petroleum (OXY.US), and Diamondback Energy (FANG.US).