Up 14% in a week. Here’s why this expert says Santos (ASX:STO) shares are undervalued


The Santos Ltd (ASX: STO) share price has been on a wild ride through 2022 so far.

Despite the peaks and troughs, it’s gained 23% year to date. That has been helped along by the 14% gain it’s racked up over the last seven days.

At the time of writing, the Santos share price is $8.19.

But do the gains mean it’s now passed the buy zone? One expert doesn’t think so.

Here’s why Firetrail Investments deputy managing director and portfolio manager Blake Henricks thinks now is the time to buy Santos shares.

2022 has been a crazy year for many ASX shares, with uncertainty around inflation and geopolitics rife.

As Henricks told Livewire last week, almost every S&P/ASX 200 Index (ASX: XJO) stock has, at some point, been heralded as protection against inflation – which is “borderline ridiculous”, according to the expert.

However, there is one sector he believes could hold the answer to inflation. That is the ASX energy sector.

The energy transition has recently been embodied by energy shortages in Europe and news that Origin Energy Ltd (ASX: ORG) will bring forward the closure of the Eraring coal-fired power station, said Henricks.

Now, oil prices are hitting their highest point in 13 years and gas prices are surging, spurred by Russia’s invasion of Ukraine.

“Everywhere I look, energy’s being disrupted,” Henricks said. “And then you look at something like a Santos.”

On why he thinks Santos is a buy, Henricks said:

That is an area, it’s inflation-protected, huge cash flows. And if it doesn’t rerate, we won’t really care because we’ll be getting dividends, huge buybacks.

Henricks also told Livewire the Santos share price surpassed $9 in early 2020. At that time, the expert said the oil price was around US$60 per barrel.

“Today, the oil price is over US$100 dollars a barrel, and Santos is around $7.”

Of course, both the Santos share price and the price of oil have gained on the figures quoted by Henricks last week.

The Santos share price is now 16% higher while the price of West Texas Intermediate futures is 24% higher, currently trading at US$124.25 per barrel, according to data from CNBC.

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