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BofA Merrill Lynch downgrades the energy sector to Marketweight following OPEC decision to maintain rather than cut production, now seeing $70 $75 as Brent crude’s 2015 range, while warning of value traps. “With the collapse in crude, the sector now trades at a 20% discount to the S 500, where it has historically traded in line with the market,” the firm says, “but further estimate cuts are likely to come, [as] prices are falling faster than earnings are deteriorating.” Seeing WTI possibly falling as low as $50 in the coming month, BofA warns that “volatility in oil prices translates to volatility in earnings.” For exposure to the sector, the firm prefers big, lower beta stocks such as Exxon Mobil (XOM +0.5%). Citi also cautions against assuming that oil prices have found a bottom, and wants to see a more thorough confirmation of a technical base of support before proclaiming anything more than the latest trading bottom; however, Citi’s Scott Gruber recommends moving aggressively on oil services if WTI crude falls into the $50s his top picks, in order, are Baker Hughes (BHI +0.1%), Halliburton (HAL 1.3%) and Weatherford (WFT +2.7%).
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