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Top of the Pops

By Elliott H. Gue on Nov. 23, 2016

With third-quarter earnings season in the bag for much of the energy patch, we take advantage of the sudden break in the action to assess where we stand today and highlight the names that offer the best risk-reward propositions over the next 12 months.

The bulk of these picks hail from the upstream (oil and gas production) and midstream (pipelines and processing) links in the energy value chain–the two areas that stand to benefit the most from a modest recovery in oil prices.

One of the major themes that we’ve highlighted over the past year focuses not on trends in overall US oil production, but rather the low-cost shale plays that stand to take market share in an environment where energy prices remain lower for longer.

This analysis has informed our positioning in the upstream segment, with the high-quality exploration and production companies that we added to our model portfolio in January 2016 up an average of 80 percent over the subsequent months.

Our selection process targeted names with strong balance sheets, low production costs, a history of solid execution and franchise assets that can deliver output growth in a challenging environment. With oil prices a point of pain or profit for all upstream operators, names that can deliver on a volumetric growth story and take market share should outperform.

We continue to like our picks from earlier this year as solid holdings for 2017. But all three trade above our buy targets, while a handful of names that the market perceives as being a notch lower on the quality scale could offer superior upside potential in the new year.

Although the market continues to throw capital at any upstream name with significant exposure to the red-hot Delaware Basin, some midstream names that play in this field and the emerging STACK play offer high yields and significant upside potential.

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      Balanced portfolios of energy stocks for aggressive and conservative investors.

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      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor