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The 3 Best Oil Stocks to Buy Right Now—Even If Energy Prices Fall

May 18, 2017, 10:30 AM UTC

Unlike tech, where money managers see virtually bottomless opportunities, the cyclical energy industry has been, well, rather dry lately. “You’ve got to pick your winners—it’s not a slam dunk as a full sector call,” says Kate Moore, BlackRock’s chief equity strategist. Case in point: Despite a growing economy and recovering profits, as of mid-May, not a single energy stock mutual fund in the U.S. had made money this year, according to Morningstar.

That said, with oil production out of “glut” territory and the industry’s earnings poised for a bounce off recent lows, investors may be able to reap outsize returns. Energy companies’ results have beaten expectations by an average of 22% so far this year. That represents “a huge opportunity for energy right now,” says Andy Goldberg, global head of investment strategy for J.P. Morgan Private Bank. “The market is pricing in more bad news for the sector than actually exists.”

Ankur Crawford, manager of the $5.4 billion Alger Spectra fund, owns Pioneer Natural Resources (PXD), which produces oil and natural gas at a lower break-even point than many of its peers. That means Pioneer can still be profitable as long as crude is selling for more than $40 per barrel. Pioneer has also pledged to retain more of its free cash flow, rather than spending it all and then some on capital expenditures and incurring debt that could sap future profits, as has been common in the industry. “They’re trying to be a little bit more rational and disciplined,” she says.

Nicolas Rapp
Nicolas Rapp
Chart shows EPS for S&P 500 energy companies
Nicolas Rapp
Nicolas Rapp

Argentina’s state-owned energy producer, YPF (YPF), whose stock is also listed in the U.S., is finally offering foreign companies and investors more inviting terms to help it develop its shale reserves. “Until six months ago, nobody … could look at YPF and ascribe any real value to those reserves because the country was a pariah,” says Michael Kass, manager of the $3.3 billion Baron Emerging Markets fund. The recent moves, he says, could start a “virtuous cycle” of other reforms in Argentina.

Susan Hirsch, portfolio manager of the TIAA-CREF Large-Cap Growth fund, prefers to get her exposure to the energy industry via a company that’s less sensitive to the ups and downs in oil prices. She likes IHS Markit (INFO), a London-based firm that provides business services to the energy industry, among others, and which is poised for a boost in business from oil and gas clients emerging from their slump. 

Pioneer Natural Resources (PXD)
IHS Markit (INFO)

This article is part of Fortune’s 2017 Midyear Investor’s Guide feature. For our picks in other sectors, click on the links below:

This article appears as part of the Midyear Investor’s Guide package in the June 1, 2017 issue of Fortune.