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Jonathan Corpina, Senior Managing Partner, Meridian Equity Partners believes you should be putting oil back in your focus ASAP.The Associated Press

Canada's benchmark index hit a record high on Wednesday, even as the energy sector remains well off its peak. Is the laggard due for a little catching up?

Credit Suisse strategists believe so. They upgraded global energy stocks to "equal weight" from "underweight" – an asset allocation term meaning that the stocks deserve a fair representation in portfolios.

It's the first upgrade in six years, and it carries a lot of meaning for the Canadian market, given that energy is the second-largest sector within the S&P/TSX composite index. It has a weighting of more than 26 per cent, versus less than 11 per cent for the more diversified S&P 500. In other words, where energy stocks go, the TSX is sure to follow.

The Credit Suisse call is largely global, though, and rests upon five key bullish signs.

1. The strategists point to relatively cheap valuations based on price-to-book ratios and dividend yields.

2. Upward earnings revisions are the strongest they've been in 18 months, and the trend should continue given the gap between the crude oil spot price and consensus expectations.

3. Most integrated oil companies have new chief executives at the helm, and they've brought new spending discipline with them.

4. As for oil prices, higher seems the most likely route in the near term. July and August are seasonally strong months; oil should rise with global economic momentum; and oil offers a good hedge against a geopolitical calamity in Iraq.

5. Investors are cautious. Net "buy" recommendations on energy stocks are at a 32-month low and hedge funds are net short of European energy stocks.

So why not ditch the "equal weighting" and go for an "overweight" recommendation? The Credit Suisse strategists believe free cash flow is still poor, they have a bearish view of oil over the long-term (the price is abnormally high relative to its historic norm, they said) and the energy sector tends to work as a defensive play.

"It has outperformed 78 per cent of the time the market has fallen since 1999 and 88 per cent of the time that credit spreads have risen – neither is our central scenario," they said in a note.

Still, the move from "underweight" offers an interesting move toward energy stocks – if not a full embrace – and that's a big deal in Canada. If the upgrade is right, it could mean plenty more record highs for the S&P/TSX composite index, where energy stocks are still about 17 per cent shy of their peak.

As for individual picks, Credit Suisse analysts recommend four Canadian stocks:

Canadian Natural Resources Ltd: Free cash flow is growing and the company is transitioning toward assets with a longer lifespan.

Gran Tierra Inc.: The company has a strong balance sheet and stable cash-flow generating assets in Colombia.

Suncor Energy Inc.: "This stock remains our preferred integrated pick given the sheer cash flow generating power of its low-decline, long life asset base," the analysts said in a note.

TransCanada Corp.: The valuation is reasonable, the company has a strong exposure to the North American infrastructure sector given its network of oil and gas pipelines, and it is moving toward more predictable growth.