NEW YORK (The Deal) -- Now that oil prices seem to be steadying at about $60 per barrel, investors may be tempted to dip back into oil and gas stocks.
Anyone feeling that urge, however, needs to consider what constitutes risk in the industry.
According to KLR's model, Cabot Oil & Gas (COG), Memorial Resource Development (MRD), Diamondback Energy (FANG), RSP Permian (RSPP), EOG Resources (EOG), Parsley Energy (PE) and Synergy Resources (SYRG) have the highest combined cash recycle ratios and the lowest financial leverage.
It is an impressive lot. Cabot, led by Dan Dinges, is a top operator in the Eagle Ford in South Texas and the Marcellus Shale in northeast Pennsylvania and is considered to be a potential takeover target.
Memorial Resource Development, headed by John Weinzierl, owns properties in northern Louisiana and many analysts, including Tudor Pickering Holt & Co. Securities, consider it significantly undervalued on a 2016 enterprise value-to-EBITDA basis compared with its peers.
"We see 46% upside compared to the peer average of 29%," Tudor Pickering Holt wrote on June 5.
And Diamondback, led by Travis Stice, operates in some of the best spots in West Texas' Permian Basin, including the Wolfcamp, has one of the better reserve replacement records in the industry and is oft mentioned as a potential acquisition candidate.
RSP Permian, as its name would suggest, is also big in West Texas, particularly the core of the Midland Basin, and the Steven Gray-led company has been considered an attractive target for Diamondback. EOG Resources, which was Enron Oil & Gas in an earlier stage of its existence, is led by Bill Thomas and is nicely diversified with good properties in several different basins.