The price of West Texas Intermediate crude has dropped almost 12% from highs posted in June, and some of the very best stocks in the energy sector have been hit hard as fast money started to move out of the exploration and production stocks. Despite some surges in global supply though, reserves are not being replaced at close to what they were in the past. In addition, some of the infrastructure product transportation issues from regions like the Permian Basin may be resolved earlier than some thought.

In a new report, the energy analysts at Jefferies feel that some of the top companies in the Permian Basin are currently trading at incredibly reasonable valuations. Toss in some big acquisitions recently, and the prospect for more to come, and it makes sense to look at some of these top companies.

Jefferies has four favorites, all are rated Buy, and all trade at a substantial discount to the net asset value.

Callon Petroleum

Jefferies currently feels comfortable about this a small-cap stock. 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. It focuses on the acquisition and development of unconventional oil and natural gas reserves in the Permian Basin.

The company’s 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. Callon made a huge $570 million acquisition of 29,000 net acres in May, which more than doubled the Delaware Basin footprint.

The Jefferies price target for the shares is $18, and the Wall Street consensus target is $17.01. The stock traded early Monday at $10.85.

Concho Resources

Earlier this year, this company bought RSP Permian for $9.5 billion, and most on Wall Street like the deal. 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.

It offers investors a unique combination of investment themes, including valuation, rate-of-change and resource expansion themes. The company is the largest acreage holder of the publicly traded Permian large-caps and provides investors peer-leading exposure to three of the most impactful catalysts across the Delaware Basin, including the Wolfcamp XY, Wolfcamp D and Bone Spring Shale.

Jefferies has a $201 price target, and the consensus target is $183.23. The shares were last seen at $136.00.

Encana

This stock has pulled back sharply and is offering an outstanding entry point. Encana Corp. (NYSE: ECA) is an energy producer focused on developing its multibasin portfolio of natural gas, oil and natural gas liquids (NGLs) producing plays. Its operations also include the marketing of natural gas, oil and NGLs. All of its reserves and production are located in North America.

Its Canadian Operations segment includes the exploration for and development and production of natural gas oil and NGLs and other related activities within Canada. This includes Montney in northeast British Columbia and northwest Alberta and Duvernay in west central Alberta. The USA Operations segment includes the exploration for and development and production of natural gas, oil and NGLs and other related activities within the United States.

The $17 Jefferies price target compares with the $17.41 consensus target. The shares were trading at $12.50.

Parsley Energy

This is smaller capitalization stock for aggressive investors to consider. Parsley Energy Inc. (NYSE: PE) is an oil and gas producer with 227,000 net acres in the Permian Basin. The majority of acreage sits on the Midland side of the basin, but the company also holds a small acreage position in the Delaware Basin. Through strategic acquisitions and acreage swaps, it has grown its acreage position since coming public and has over 7,900 horizontal locations across multiple prospective zones

The company is a catalyst rich and is Permian Basin pure play. Parsley Energy has some of the strongest wells in the basin, generating returns that are among the best in the industry. It also is rapidly de-risking its drilling inventory and is well-positioned to continue to beat its strong growth projections.

The Jefferies price target is $40. The consensus target is $41.58, and the stock traded at $28.30 on Monday.

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Not only are these stocks cheap on a valuation basis, but Callon, Encana and Parsley are potential takeover candidates. While better suited for more aggressive accounts looking to add energy, they are solid buys at current levels for sure.

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