There was already more than enough global macro worries to go around before the Iraqi army pushed into the Kurdish territories to seize military bases and oil fields in the region. So now, we have yet another incident that is pushing the price of oil higher. While West Texas Intermediate (WTI) had already broken back over the $50 mark, it was starting to fade, and the new activity in the Mideast has strengthened the bid.

In a timely new research report, Merrill Lynch starts coverage on seven new small/mid-cap exploration and production energy stocks. While Merrill Lynch sees some possible near-term headwinds as oil supply and demand balance out, the firm still believes select stocks that are focused on the Permian Basin represent the best risk/reward in the sector.

Of the six stocks the firm starts coverage on, the following four are rated Buy and make sense for more aggressive growth accounts looking for energy exposure.

Callon Petroleum

This is one of the small cap stocks that the Merrill Lynch team feels comfortable about currently. Callon Petroleum Co. (NYSE: CPE) is an independent oil and natural gas company that is engaged in the exploration, development, acquisition and production of oil and natural gas properties. The company focuses on the acquisition and development of unconventional oil and natural gas reserves in the Permian Basin.

Its drilling activity focuses on the horizontal development of various prospective intervals in the Midland Basin, including multiple levels of the Wolfcamp formation and the Lower Spraberry shale. It owns additional immaterial properties in Louisiana. As of December 31, 2016, Callon had owned leaseholds in 39,570 net acres in the Permian Basin, all of which were located in the Midland Basin.

The Jefferies price target for the stock is $15, and the Wall Street consensus target is $15.78. The shares traded early Wednesday at $11.15.

Centennial Resource Development

This off-the-radar company could have solid upside potential. Centennial Resource Development Inc. (NASDAQ: CDEV) is a pure play Permian oil and gas producer. The company holds 87.9 thousand net acres across the Delaware Basin with its largest position in Reeves and Pecos, Texas, (76.1 thousand net acres) and recently acquired position in Lea County, New Mexico, (11.9 thousand net acres), the company’s legacy position, which was held since the time of its initial public offering (IPO) in late 2016, covers 42.5 thousand net acres in Reeves, Pecos and Ward counties.

Centennial Resource has a huge short position of 28% of the float, or almost 23 million shares. Any positive news and reports could send the short-sellers scurrying for the exits and drive the stock substantially higher.

Merrill Lynch has a $22 price target, and the consensus target is $17.76. The shares traded on Wednesday at $18.35.

Jagged Peak Energy

This was an early 2017 IPO and is another smaller company that has sizable upside potential from current trading levels. Jagged Peak Energy Inc. (NYSE: JAG) is another Permian Basin oil and gas producer, with 70,000 net acres in the Southern Delaware Basin in three operating areas. The largest position is held in Whiskey River (35,000 net acres), which is located in Reeves and Ward County, followed by Big Tex (22,000 net acres), which is located in Pecos County, and Cochise (12.900 net acres), which straddles Ward and Winkler counties.

Jagged Peak began drilling its first well on the eastern margin of the Delaware Basin in 2013, proving to many that the Wolfcamp Shale is oily and prolific in an area that other producers tended to avoid. Some Wall Street analysts think the company’s Wolfcamp A and B wells can yield 1.2 million barrels of oil equivalent, with an 82% oil mix. There are estimates that the oily production mix allows the company to break-even with the price of WTI at a very low $28.50 per barrel.

Merrill Lynch has set its price target at $17. No consensus target was available. The stock traded Wednesday at $13.90.

WPX Energy

This is another top small cap Permian Basin play with solid upside potential. WPX Energy Inc. (NYSE: WPX) is an independent oil and natural gas exploration and production company that engages in the exploitation and development of unconventional properties in the United States. Its principal areas of operation include the Permian Basin in Texas and New Mexico, the Williston Basin in North Dakota and the San Juan Basin in New Mexico and Colorado.

WPX is a premier Permian-levered operator with sector-leading debt-adjusted cash flow growth (on par with Parsley Energy) supported by strong execution in the core Delaware, all while trading at a Williston Basin valuation, primarily due to its relatively high financial leverage.

New top management changes are a positive. President and CEO Rick Muncrief has streamlined the company’s asset base around oil-focused growth. The firm has monetized legacy domestic gas and international assets following his appointment earlier this year, bringing an opportunity for expanding cash flow and returns.

The $15 Merrill Lynch price objective compares with the consensus estimate of $15.31. The stock was trading at $11.10 a share.

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These four smaller Permian-focused companies may be great additions to more aggressive portfolios. All have solid upside potential to the analyst price targets, and because of their smaller size, they may become takeover candidates someday.

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