The move higher in the price of crude oil has put the market in what is called backwardation. That is, spot prices are higher than prices for futures contracts, creating a downward-sloping curve for futures prices. With energy stocks strongly underperforming this year, some top analysts on Wall Street feel that the sector is well set up for a rotation of investors dollars to come in to the sector.

In a series of new reports, Jefferies points out that the strong and somewhat surprising third-quarter gross domestic product reading of 3% shows that growth in the economy is still in place. With global oil demand actually strengthening, the wild card is whether OPEC nations can stick to their production cuts. Toss in the fact that the U.S. oil rig count dropped again last week, and the ingredients for a continued rally could be in place.

Jefferies is very positive on four top energy companies, two of which are in the firm’s Franchise Picks portfolio of high conviction stocks to Buy. All make good sense for growth accounts with reasonable risk tolerance.

Anadarko Petroleum

This top company is still down a stunning 30% since January and is an outstanding Buy at current levels. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate, and natural gas liquids (NGLs). The other segments are Midstream and Marketing.

The company reported third-quarter numbers that missed on what they said was another round of exploration charges related to prior period write offs. However, EBITDA did beat consensus estimates. Compounding the messy quarter, the company lowered its fourth-quarter production guidance, citing some storm impact, but predominantly asset sales.

Looking past the current issues, momentum from focused oil growth into 2018 remains intact, with stock buybacks set to accelerate in this quarter, which should push the shares higher. The Jefferies analysts forecast Anadarko generating aggregate free cash flow of $2.1 billion in 2018 to 2019.

Shareholders receive just a 0.4% dividend. Jefferies has a $58 price target on the shares. The Wall Street consensus target is $60.81. The shares closed Tuesday at $51.08.

Chevron

This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.

The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas. Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.

The company reported solid earnings for the third quarter, and the analysts have noted that the Permian Basin remains a key source of capital flexibility and is a key issue behind their relative preference for Chevron over some of the other majors. The report noted this:

Chevron reported earnings recently and the stock fell 4% on the day following results. Headline earnings per share looked like a miss, but if non-recurring items had been identified, we believe the number would have looked like a 4% beat. Production missed by 0.4% but rose 8% year over year and we expect 10% growth in 2018. We were surprised that the company did not increase the dividend this quarter, but the outgoing CEO indicated that the dividend decision may have been conservative and can be revisited in 90 days. We raise our 2018 EPS number and are well ahead of consensus. We’re buyers on weakness.

Chevron shareholders receive a 3.68% dividend. The Jefferies price target is $137, and the consensus price objective is $122.89. Shares closed Tuesday at $117.24.

Devon Energy

This company is another favorite at Jefferies. Devon Energy Corp. (NYSE: DVN) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and NGLs in the United States and Canada. It operates approximately 19,000 wells.

The company also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensate through its natural gas pipelines, plants and treatment facilities.

The analysts noted this in their recent research report:

Devon continues to achieve well cost reductions as the company transitions to full development mode. As an example, the Anaconda project in the Delaware Basin delivered an estimated $1 million reduction per well when compared to traditional pads. These lower well costs are a result of less non-productive time spent moving rigs and getting more efficient on repetitive processes. Two-thirds of the 2018 program will be on multi-zone projects. The company also locked in its 2018 sand for the STACK and Delaware Basin at below market rates, using regionally sourced sand vs northern white sand.

Investors receive a 0.61% dividend. The $43 Jefferies price target was raised to $45, which compares with a consensus price objective of $41.48. Shares closed Tuesday at $41.26.

Diamondback Energy

This top Permian Basin play was recently added to the Jefferies Franchise Picks list. 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.

Earnings estimates for the company continue to go higher, and many on Wall Street feel Diamondback can deliver total 2017 numbers that come in above current consensus estimate. Jeffries noted this when the stock was added to the Franchise Picks list:

Diamondback Energy is the analyst’s top pick under coverage due to its 30 year+ of project inventory at the very low end of the US shale cost curve, Free cash flow generation and low leverage. Shares trade at 6.3x 2019 EBITDA, roughly in line with our coverage with multiple compression at 2x the rate of the peer group. Fiscal 2018 EPS estimates are 2% ahead of consensus, our production estimates are ahead, and we believes the company’s Permian assets are underappreciated by the market.

Jefferies has set its price target at $124. The consensus target is $122.97, and s shares closed Tuesday at $111.80.

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Four top stocks to own for the rest of 2017 and well into next year and beyond. While oil could top at $60 and move sideways through the next two years, with reduced production costs, most companies make solid money at those levels.

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