Energy stocks have undergone a “very sharp, technically driven correction” in the past couple of weeks, but there should be a strong move upward through the end of the year because of higher natural gas prices this winter and upward earnings guidance for 2006, Raymond James’ energy analysts predicted in a new report.

In their latest “Stat of the Week,” the analysts noted other factors also could help to improve energy stock prices, including a “meaningful upside” for 3Q estimates for non-U.S. Gulf companies, bullish oil inventory numbers and a lack of alternative, attractive investment opportunities.

“Given these emerging positive catalysts, we think investors should be aggressively taking advantage of this pullback,” said the analysts. “Our favorite names would be land-based energy companies that have seen meaningful corrections.”

Analysts J. Marshall Adkins and John Tasdemir said the recent drop in energy indexes fueled concern by portfolio managers that the energy bubble soon would pop. However, there are “very sound fundamental reasons” the stocks have fallen in recent weeks, including price-driven energy demand destruction, 3Q earnings disappointments and a weakening global economy.

“On the other hand, we can come up with even more very sound fundamental reasons why the stocks should be higher today than they were a few weeks ago,” including a “clearer view” of higher gas prices this winter.

The analysts suggested investors “sit tight, weather the storm and look for a strong year-end finish.” They warned there could still be another 5% near-term downside from here, but the bottom should occur over the next two weeks.

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