NEW YORK (TheStreet) -- So far in 2014, the market has been off to a mixed start. With question marks about the strength of the U.S. consumer (with the latest retail results calling consumer spending into question) and mixed macro data (including the latest jobs report), the clean cut bull case is becoming more complicated.
Now, one of the reasons the biotech space was so hot last year was because it is defensively postured (read: more immune to macro-economic trends) but it has growth.
Surprisingly enough, within energy, there is a cohort that is similarly positioned: the exploration & production (E&P) companies.
Now, there is no question that these names will trade with the price of oil. But it just so happens that the domestic shale plays can appreciate based on strong acreage, production growth, and low costs.
2013 was the year of the Permian Basin, 2012 was the year of the Eagle Ford, and 2011 was the year of the Bakken. What is the theme for 2014? At this point, most of the plays have been discovered, with even new finds in the Utica "known." So key is choosing the names with the BEST acreage--because they will continue to outperform.
Don't believe these names can be decoupled from commodity prices? Take a look at Cabot Oil & Gas (COG) which has been one of the best performers in the group despite continued rock bottom natural gas prices. The company is still well-positioned with 30% to 50% production growth anticipated in 2014.
Sell-offs in this group provide an opportunity to buy best of breed names because this shale revolution is a long-term theme.
The best name in the Eagle Ford and Bakken remains EOG Resources (EOG). This name could generate $1 billion in free cash flow in 2014 (that is unheard of!), making this name more defensively positioned even though it is a growth name.
Best of the Permian? Pioneer Natural Resources (PXD), along with Cimarex (XEC) which is on the Delaware side of the basin. The Permian has about six tonnes to target within the same acre (it is one of the thickest shales) and much upside remains.
When it comes to the Utica, the best of breed is Gulfport Energy (GPOR). The company is essentially debt free and also holds a considerable share of Diamondback Energy (FANG), which they took public and which has exposure to the Permian. Peer Antero Resources (AR) went public in October and is up 30% since its offering, resetting the valuation. If you want a new name in the space, look at Rice Energy, which is expected to come public next week under the symbol RICE. There has been a lot of skepticism around the name given its smaller footprint and young age of the leadership, but this has the best wells in the group and that's what matters--and the company posted around 200% production growth in 2013.
In terms of other names, catalyst-driven names are well positioned. One of the best event-driven names is EQT Corp (EQT) in the Marcellus and Utica. This year will be the year of a potential breakup of EQT, spinning off its exploration & production business from its midstream business. And could see a Sum of the Parts valuation of $135 per share according to some analysts. This upstream/midstream split would cap off the company's multi-year strategy, which has been a series of shareholder friendly moves. The company sold its utility, which strengthened the balance sheet by $1.2bn of cash. This is key because it makes the upstream business self-sufficient to generation top production and cash flow growth and the company has strong acreage. It will continue to drop down assets to its MLP, EQT Midstream Partners (EQM) which IPO'd in the summer of 2012.
The bottom line: Buy the names with the best acreage and company-specific catalysts. Those names are EQT and Cabot in the Marcellus, EOG in the Eagle Ford and Bakken, Pioneer and Cimarex in the Permian, Gulfport and the upcoming Rice in the Utica.