Refining stock prices are undervalued by about 50 percent, Barclays wrote in a 2013 Global Energy Outlook issued on Wednesday.
While their products are not as sleek or user-friendly as the iPhone5, refineries have benefited from lower prices for domestic crude and a robust international demand for refined products.
“We expect the WTI-Brent differential to remain around $16 per barrel and recommend all the U.S. refining equities,” Barclays wrote, explaining that the price advantage enjoyed by U.S. refiners enjoy has made it difficult for refining businesses to remain profitable in the rest of the world.
Oil glut: New refineries would ease crude storage problem
While the domestic oil field service companies have been hurt by too many competitors and more downtime, the overseas scenario is more promising. International operators have projected sharp increases in their capital expenditure budgets in the coming years, making oil service companies an attractive investment.
“We expect higher spending growth outside the US, and recommend the large-cap diversified equities and credits – Baker Hughes, Halliburton, Schlumberger and Weatherford,” Barclays wrote.
Texas power company stocks should also benefit from capacity shortage issues, Barclays said.
“The Electric Reliability Council of Texas (ERCOT) is the only power market in the US with a reserve margin below 15 percent, and it is moving towards 10 percent by 2015,” Barclays wrote. “We recommend NRG Energy, as it has the biggest ERCOT exposure.”
And Big Oil?
“We are more cautious,” wrote Barclays, explaining that international operators are facing declining production. “We also calculate that the global majors need more than $125 per barrel to cover their capex and dividends, well above the prevailing Brent price.”