NEW YORK (TheStreet) – With the plunge in oil prices this year, energy was the most talked-about sector of the entire market in 2014 -- and arguably the most disappointing.

But investors have not given up on strong brands like Exxon Mobil (XOM) , down 7.9% for the year, and Schlumberger (SLB) , down 3.3%. Both stocks are up more than 5% in the past week, fueling speculation that oil prices have finally bottomed and a rebound is under way.

Nonetheless, as a group, the sector has posted a year-to-date aggregate decline of 6.9%, trailing both the Dow Jones Industrial Average, up 8.9%, and the S&P 500, up 13%, which are poised to end the year at or near all-time highs. Take a look at the chart below.

XOM Chart
XOM data by YCharts

All told, oil prices are down 43.6% in the trailing 12 months, leading to a 9.5% decline in the Energy Select Sector ETF (XLE) -- home to some of the top energy plays such as Chevron (CVX) (down 9.3% year to date) and Occidental Petroleum (OXY) (down 14%). Despite the declines in their stock prices, however, several companies are still growing profits and meeting production targets, making them good contrarian picks.

The first company to consider buying is Schlumberger. For the January quarter, Schlumberger is projected to grow full-year 2014 earnings per share to $5.62, representing an 18.3% year over year jump, according to CNN Money. If fiscal 2016 estimates of $6.35 per share are reached, Schlumberger is on track to grow earnings by almost 34% in two years.

Part of the optimism has to do with the company's ability to shield itself from things it can't control, including U.S. and European economic sanctions against Russia over the Ukraine crisis. In August, Schlumberger said these issues would have limited impact on its operations. This was proven true as both third-quarter revenue and profits beat analysts' estimates. Analysts have a 12-month price target of $119 on the stock, suggesting gains of more than 36%.

Investors should also take a look at ConocoPhillips (COP) (down 1.1% on the year). Despite trimming next year's budget to offset weak oil prices, these cuts won't be at the expense of growth. Conoco still projects reaching 3% to 5% growth for its oil and gas output in 2015. And this should bode well for the stock, which has a consensus Buy rating from 23 investment analysts polled, according to CNN Money.

Optimism about the stock has to do with the company's ability to boost its bottom line despite weak oil prices. In its third-quarter, despite weak revenue, Conoco still grew net income by 8% year over year and grew earnings-per-share by 8.5% year over year. What's more, the company pays a yield of 4.05%, topping both Exxon and Chevron, which pay yields of 2.85% and 3.57%, respectively.

Chesapeake Energy (CHK) is another stock to keep an eye on in 2015. Although shares are down more than 22% on the year, Chesapeake is actively buying back its stock. Management recently discussed plans to spend $1.26 billion to take all of the outstanding preferred shares off the market.

In addition, Chesapeake, which is the No. 2 natural gas producer in the U.S., is actively looking for ways to secure future production growth and increase its exposure in areas where it can capitalize on improved drilling activity in the U.S.

In July, the company announced a deal with RKI Exploration in which Chesapeake will exchange 137,000 net acres and its entire interest in 67 gross wells in the North Power River Basin. This means Chesapeake has almost doubled its interest in that area, going from 38% stakes to 79%, ensuring it will have no issues with production for the next several years. At around $19, look for the shares to reach $25 in the next 12 to 18 months, yielding gains of 30%.


While no one knows what oil prices are likely to do, there are several ways to play an expected recovery. With the overall market at or near all-time highs and investors expecting a pullback at every turn, some of the energy laggards can become immediate winners, assuming they're able to meet production and profitability goals.

KMI Chart
KMI data by YCharts

At the same time, however, the top performers including Kinder Morgan (KMI) (up 19%), EOG Resources (EOG) (up 11.8%) and Williams Companies (WMB) (up 18.3%), which have shown they can execute their way through difficult periods, should continue making new highs.

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TheStreet Ratings team rates SCHLUMBERGER LTD as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate SCHLUMBERGER LTD (SLB) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company shows low profit margins."

You can view the full analysis from the report here: SLB Ratings Report

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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