Wolfe Research has singled out several oil companies as its leading picks, but analysts at the firm stress a cautious and selective approach. While the recent run-up in oil has lifted near-term earnings forecasts and pushed sector performance substantially higher year-to-date, Wolfe warns that elevated valuations in some names may not be compelling unless a higher long-term oil price materializes and is sustained.
The research team points to a marked improvement in the earnings outlook driven by stronger oil prices. On average, earnings for both global integrated majors and exploration and production companies have risen by 36% for the first quarter of 2026 and for the full year 2026. Yet Wolfe notes that the translation of those improved earnings into market value is moderated by pricing dynamics - including lags between spot and realized prices and the prevailing shape of the forward curve.
Screening criteria and overall stance
Wolfe Research says it is maintaining a selective stance across the energy sector. Its screening prioritizes absolute value at current strip prices and the rate of change in fundamentals and cash flow. The firm remains constructive on the idea of a higher long-term oil price, but it does not view the time horizon for that outcome as sufficient to outweigh near-term spot price risk for all names. This leads Wolfe to favor companies where the valuation appears attractive on a strip-based valuation framework or where rate of change velocities are most favorable.
Company-level highlights
APA Corporation - Wolfe lists APA as its top pick, but the firm underscores a mixed valuation environment across the sector. APA reported fourth-quarter earnings that exceeded EPS expectations, even as revenue came in slightly below forecasts. The company recently saw an upgrade to Equalweight from Barclays and a higher price target from Raymond James.
BP p.l.c. - Wolfe points out that, at strip prices, several energy names already reflect full valuations. Factor rotation propelled the Energy Select Sector SPDR ETF (XLE) up 23% through February 28, and the combination of that rotation with a rapid oil price inflection leaves year-to-date absolute sector performance closer to 30%. On BP specifically, the company has been directed to reduce output at major oilfields in southern Iraq and is engaged in talks with Mexico over potential exploration opportunities. BP is also pursuing licenses for natural gas projects in Trinidad and Venezuela.
Devon Energy - The firm says the recent strength in oil has meaningfully boosted near-term earnings expectations, but it cautions that earnings metrics are being distorted by abnormal price swings across physical oil and product markets that break normal relative-price relationships. Devon benefits from marking to market against actual price indicators. Separately, the proposed merger between Devon and Coterra Energy has cleared the Hart-Scott-Rodino antitrust waiting period, and both TD Cowen and Raymond James have increased their price targets on Devon.
Ovintiv - Wolfe highlights the risk that spot prices could either spike or collapse depending on how long geopolitical conflicts persist. The firm argues that any normalization of flows could end what has been an indiscriminate investor pivot toward energy, and therefore calls for prudence. Ovintiv reported fourth-quarter results with EPS above expectations and revenue in line with forecasts. BofA Securities raised its price target on the company, and Truist and Morgan Stanley initiated coverage.
Occidental Petroleum - The firm applies a valuation framework that it defines as free cash flow multiplied by duration and adjusted for capital structure, using the strip as a baseline to evaluate absolute value. Wolfe observes that the bulk of the upside move in the forward curve has already been captured by the sector's year-to-date performance. Occidental received Overweight upgrades from both Wells Fargo and Piper Sandler, which cited improved capital efficiency. Media reports have indicated that CEO Vicki Hollub is preparing to retire.
TotalEnergies - Wolfe continues to prefer names where absolute value at strip prices is evident and where the rate of change in fundamentals can differentiate performance. TotalEnergies posted fourth-quarter adjusted earnings above analyst expectations and revenue well ahead of consensus. The company also disclosed that it has lost roughly 15% of its oil and gas output because regional conflicts have shut down fields in the Middle East.
ConocoPhillips - Wolfe notes that companies benefiting from transitory windfalls across oil, gas and refining are likely to use such gains to deleverage. ConocoPhillips is reportedly exploring the sale of certain Permian Basin assets. The company has been added to Goldman Sachs' conviction list, while Roth/MKM downgraded the stock to Neutral and Truist started coverage with a Hold rating.
Interpretation and implications
Overall, Wolfe Research is advocating for a measured approach that balances the stronger near-term earnings outlook against market-structure realities that can mute value translation. The firm is focused on identifying companies where the strip-based valuation and the rate of change in free cash flow and balance-sheet dynamics create a clearer case for investment, rather than relying solely on the recent momentum in oil prices.
Wolfe's analysis places particular emphasis on how price lags, the backwardation or contango in the oil curve, and exogenous geopolitical shocks can alter realized cash flow and investor returns. These factors inform its preference for select names rather than broad, indiscriminate exposure to the sector.