"For those invested in energy we believe the balance of risk has improved materially," writes the firm's oil and gas equity analyst Douglas Leggate in a Wednesday note. "We believe the balance of risk for the large cap US oils has improved materially with implied oil prices 'discounted' nearing $60. As a minimum we believe a selective look at renewed Energy exposure is warranted." Leggate recommends Hess ( HES), Marathon Oil ( MRO), Anadarko Petroleum ( APC) and Occidental Petroleum ( OXY) as oil and gas sector top picks. Hess, which is trading within 10% of its 2008 lows amid execution problems and weak earnings, is Leggate's top pick. For Hess, Leggate sees the company's production in the Bakken shale, in addition to previously announced asset sales and commodity price hedging as catalysts for the stock. "We believe the recent sale of HES 16% stake in Scheihallion with associated value we estimate at ~$400m may be just the start," he writes. Meanwhile, Leggate calculates that Marathon Oil is trading at one of the lowest multiples of large cap energy names. "In our view this is not justified and with the separation for the refining and marketing business complete, 2012 sees the first full year as an independent where management can fully dedicate upstream cash flow to E&P activities." Anadarko Petroleum may benefit from lower than expected legacy legal liability from its Tronox unit and Occidental Petroleum provides the sector's most defensive value play, Leggate adds. 2. Stifel Nicolaus Focus: energy stock short squeeze Comstock Resources ( CRK), Magnum Hunter Resources ( MHR), EXCO Resources ( XCO), Petroquest Energy ( PQ) and Bill Barrett ( BBG) are all natural gas-tied stocks that could rise on a short squeeze, notes Sifel analyst Amir Arif in a June 6 note. "Non-commercial net short positions have been reducing in nat gas despite the recent drop in nat gas prices," writes Arif. A possible short squeeze lines up with Stifel's belief that while natural gas is still oversupplied relative to the firm's outlook on supply and demand, it is less so, potentially benefiting commodity prices. "The storage constraints this fall should provide a damper on natural gas and a good entry point at sometime between 2Q earnings and the fall." Other stocks that could benefit from declining natural gas inventories and a sector short squeeze include Southwestern Energy and Cabot Oil & Gas ( COG). 3. Guggenheim Securities Focus: independent E&Ps In a Tuesday note to clients, Guggenheim Securities analyst Rob Cordray highlights Anadarko Petroleum and Noble Energy ( NBL) as top picks across the exploration and production sector, while Devon Energy ( DVN) still stands to benefit from the shift it made from deepwater oil to unconventional drilling assets after selling its Gulf of Mexico holdings to BP more than two years ago. Nevertheless, Cordray sees Devon Energy's Canadian assets as particularly exposed to oil price volatility.