Are oil and gas stocks still worth it?

Fundamentals are sound but outlook remains dim.

Headwinds continue to abound for oil and gas stocks, and investors need to be cautious when it comes to snapping up cheap oil and gas shares.

According to OCBC, a full-blown recovery seems unlikely in the near-term as oil prices are expected to remain low, and companies continue to operate in difficult business conditions.

"We believe that the oil and gas sector has positive long-term fundamentals, but stepping into 2016, we continue to see headwinds for the industry as oil and gas companies are wary of new investments amidst a rebalancing oil market," OCBC said.

Although valuations are not demanding, there is also a lack of strong catalysts for the sector, OCBC said.

"As such, we would favour companies with strong balance sheets to weather the downturn. Those with exposure to higher quality clients and a significant outstanding order book should also be more resilient. In addition, companies that have the ability to diversify into non-oil and gas related sectors and do so successfully would also be worthy of investors’ attention,” the report noted.

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