Energy equities and commodities: Mizuho picks this sector U.S. energy sector shares saw a stellar run-up since mid-February, as they tracked a strong run-up in commodity prices from 2024 lows. This run-up saw Mizuho analysts question whether energy stocks or commodity prices presented more value.

The S&P 500 energy sector (NYSE:XOP) was now outperforming the S&P 500 by a margin of 8% so far in 2024, Mizuho analysts said in a recent note. The gains came largely on the back of a rebound in oil and gas prices, while refining margins also improved.

Mizuho favors oil stocks, selective on gas and refiners 

Mizuho analysts said they favored “oily” stocks, with top sector picks Chevron Corp (NYSE:CVX), Coterra Energy Inc (NYSE:CTRA) and Civitas Resources Inc (NYSE:CIVI). While gas and refining stocks had largely outperformed gas and refining prices in recent weeks, oil exploration and production stocks were still trading largely in line with West Texas Intermediate crude prices.

Gas and refining stocks appeared open to some pullback going into the second quarter. 

Still, Mizuho analysts said they preferred some gas explorers and producers, namely Chesapeake Energy (NYSE:CHK) Corp (NASDAQ:CHK) and Range Resources Corp (NYSE:RRC). 

The brokerage recently downgraded all U.S. refining stocks to neutral, stating that while refining margins had risen substantially in recent weeks, they still remained weak relative to historic levels.

The refining sector’s outperformance of refining margins also presented some “overhang,” which made Mizuho analysts cautious over some easing valuations in the near-term.

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