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Pro: Cheap energy stocks

5 h ago

Goldman Sachs sees continued opportunity in dividend-paying energy stocks despite the sector's strong rally, with the State Street Energy Select Sector SPDR ETF (XLE) up 45% year-to-date versus the S&P 500's 13% gain. Analyst Neil Mehta noted that rising oil prices—Brent crude above $95 per barrel amid Middle East conflict—have prompted investors to seek value in oil and gas coverage. Goldman recommends buy-rated stocks trading below-average 2028 multiples with above-average total return potential. Key picks include Devon Energy (DVN), up 33% YTD with a 2.3% dividend yield, which Mehta calls "a compelling valuation opportunity" trading at a 14% free cash flow yield on 2027/2028 estimates. The company returns up to 70% of FCF to shareholders and beat Q2 earnings. Goldman's $55 price target implies 12% upside. Expand Energy (EXE), a gas exploration and production name, offers a 2.3% yield and trades at a 10% FCF yield versus an 8% peer average. Mehta highlights its reliable cash flow and capital return program. Shares are down 10% in 2026 despite mixed Q2 results. Refiner HF Sinclair (DINO) has surged 131% YTD but trades at a discount due to interim CEO/CFO transitions. Mehta sees value in non-refining earnings (lubricants, renewable diesel, midstream) and niche refining markets. The stock yields 2%, with a $114 price target suggesting 7.5% upside. ConocoPhillips (COP) has a $146 price target (6% upside) based on a $7 billion FCF inflection by 2029 from four major projects and $1 billion cost cuts. The stock yields 2.5% and is up 45% YTD, but trades at a discounted multiple reflecting a back-half-weighted FCF uplift.