Guinness: Energy stocks have 50% upside over next three years

Energy stocks could see up to 50% upside over the next three years, according to Guinness Asset Management's Tim Guinness, supported by the high price of oil.

Although the chairman and CIO of the firm said the oil price could fall below $80 a barrel temporarily, he said it will move back up to trade between $80 and $100.

"We see oil staying high as the fundamentals are surprisingly positive. Everybody is focusing on the fact that oil demand in the developed world is flat to slightly down, but it continues to be strong in the emerging world where it is growing at a pace of one to two million barrels per day.

"There is no evidence that non-OPEC supply can meet this demand, and this puts OPEC in the very strong position to support the price in the face of any weakness."

He pointed out OPEC has withdrawn supply four times in the past 12 years when the oil price was sliding and created a floor.

"Oil might go below $80 a barrel for a few weeks or months but it will go back well above $80."

On the basis that energy stocks are trading on a price to earnings ratio of 1.7x while the broader market is averaging 11x, or energy shares are trading at a 70% discount to the broader market, he believes they will offer 40%-50% upside over three years.

"For that scenario to happen, I need to be right about the oil price, but the returns on capital amongst world's energy companies remain good and the earnings will steadily grow," Guinness added.