While focused on the E&P industry, Morgan Stanley & Co. Inc. analyst Stephen Richardson’s advice is to stay long and keep focus on the highest conviction names.

His top picks with an Overweight rating are: Devon Energy Corp., Oklahoma City (NYSE: DVN); Apache Corp., Houston (NYSE: APA); EOG Resources Inc., Houston (NYSE: EOG); Cabot Oil & Gas Corp., Houston (NYSE: COG); Ultra Petroleum Corp., Houston (NYSE: UPL); XTO Energy Inc., Fort Worth (NYSE: XTO) and Suncor Energy Inc., Calgary (NYSE: SU).

Downgraded to Equal-weight rating are: Denbury Resources Inc., Plano, Texas (NYSE: DNR); Plains Exploration & Production Co., Houston (NYSE: PXP) and Talisman Energy Inc., Calgary (NYSE: TLM). He removed the rating on Core Molding Technologies, Columbus, Ohio (Amex: CMT).

“The current commodity price outlook—futures market pricing—supports  this view, which suggests continued upward revisions to earnings estimates and, we think, support for the equities,” Richardson says. “We expect continued debate over the sustainability of ‘higher for longer’ energy prices.”

He adds that global trends driving commodity prices—tight supply and demand, higher prices for alternative fuels—E&P is positioned to benefit from its commodity price leverage, legacy asset position, scale and its ability to grow. 

--JAS