One would think that investors that are short oil would have cleared some of that position as the move off the February lows to briefly into the $50s was a strong 100% jump. The fact of the matter is that, according to the investment strategy team at RBC, the short position in West Texas Intermediate (WTI) recently eclipsed the record high levels set earlier this year, and while there is still a supply glut around the world, many feel that oversupply will be worked off by the summer of 2017.

In an outstanding research piece, the RBC team go right to the heart of the current situation and, while acknowledging that the current glut does indeed remain, they also have this to add:

With many of the large and previously unknown bearish risks to the market now known, we believe that the risk/reward profile appears asymmetrically skewed to the upside as improving fundamentals begin to overrule the recent weak sentiment. Despite the global supply overhang, aggregate OECD stocks excluding the US have actually drawn down marginally so far this year, and there have been meaningful storage draws in several Non-OECD countries.

So what should investors do? Own a combination of integrated leaders and add in Permian Basin companies that are nimble and doing an outstanding job in keeping costs low. We found four top stocks to Buy that fit this overall profile. They are well off highs set earlier in the summer, and are outstanding picks for long-term growth accounts. They are also all rated Buy at the top firms we cover on Wall Street.

Chevron

This stock is very solid story for investors looking to stay long the energy sector, and it is a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is an integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.

The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position. The analysts note the Permian acreage is profitable at $40 a barrel.

Jefferies hosted a meeting with the company’s CEO, John Watson, in the spring. He made it clear that preserving the dividend for investors is the top priority. Jefferies also points out that although the company trades in line with its peers, the growth potential and solid balance sheet deserve a 10% premium.

Chevron investors receive a massive 4.2% dividend. The Jefferies price target for the stock is $116, and the Wall Street consensus price target is $110.75. Shares closed trading Friday at $102.16.

Concho Resources

Besides being one of the top energy plays in the Permian Basin, this is also a Wall Street favorite. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.

Earlier this year the company recently announced three separate transactions that enhance its position in the southern Delaware Basin, high grade the company’s portfolio and reduce net debt:

1. It agreed to acquire approximately 12,000 net acres complementary to its core North Harpoon prospect in Ward and Reeves Counties, Texas, from a private operator for total consideration of approximately $360 million, through a combination of common stock, cash and drilling carry.
2. Concho Resources completed an acreage exchange with Clayton Williams Energy, consolidating 21,000 net non-operated acres into a concentrated, operated position adjacent to the Concho’s Big Chief prospect in Reeves County.
3. The company also agreed to sell 14,000 net acres in Loving County, Texas, for cash proceeds of $290 million.

The aggregate impact of these transactions is neutral to Concho’s 2016 capital and production outlook.

The company posted solid quarterly results that beat estimates as production came in above the high end of guidance and costs surprised to the downside. The Southern Delaware basin showed good performance during the quarter.

Deutsche Bank raised its price target to $150 from $140. The consensus target is set at $139.03. Shares closed on Friday at $133.73.
Diamondback Energy

This remains another favorite of Wall Street analysts and is another top Permian Basin play. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin. Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.

Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.

The company announced solid numbers for the second quarter and also previously said that production would be higher. In addition, the company continues to lower drilling costs and times. Leading-edge Midland Basin costs to drill, complete and equip wells are currently below $6.0 million for a 10,000 foot lateral well and below $5.0 million for a 7,500 foot lateral well.

During the second quarter of 2016, Diamondback drilled a 10,000 foot lateral well in Andrews County and a 10,500 foot lateral well in Glasscock County in less than nine days each from spud to total depth, a new record for the company.

Deutsche Bank lifted its price target to $112 from $104. The consensus target is $105.93. The shares closed Friday at $94.58.

Occidental Petroleum

This is one of the higher yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an international oil and gas exploration and production company with operations in the United States, Middle East and Latin America. It is one of the largest U.S. oil and gas companies, based on equity market capitalization. Its midstream and marketing segment gathers, processes, transports, stores, purchases and markets hydrocarbons and other commodities in support of Occidental’s businesses. In addition, the wholly owned subsidiary OxyChem manufactures and markets chlor-alkali products and vinyls.

With a rock-solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.

Shareholders receive a 4.08% dividend. Merrill Lynch has an $87 price target, and the consensus target is $78.73. Shares closed on Friday at $74.46.

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Investors should consider buying these four top plays now, with at least a one-year holding period. While oil could remain volatile, once it starts to level off over $50 and begins to be poised for a move to $60, the shorts will get very nervous.

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