The analysts stressed that they remain bullish on stocks within their coverage, especially some stocks that have declined the most. Here are three of the stocks they believe have the most upside, and why, when taking company-specific potential into account. (Two of the three stocks—QEP Resources and Denbury—were highlighted recently
by CNBC.com as S&P 500 stocks that will go up the most if oil rebounds, based on data analysis from CNBC partner Kensho.)
Stephens analyst Matthew Marietta
Rig counts may be declining, but Nabors is in the process of replacing older rigs with 33 new AC rigs, which are far more efficient than traditional drilling equipment. Once those rigs are replaced, it will have the second most AC rigs of any oil field service company, after Helmerich & Payne.
That's good news for investors, as AC rigs are in high demand, and lower oil prices will ultimately support greater adoption of these rigs as the drillers need to become more efficient.
Nabors is also in the process of selling its underperforming completion and production business—a division that sets up wells for production and then eventually plugs them up—to C&J Energy Services for $2.86 billion. "This allows them to return to its core competency of contract drilling," Marietta said. "The money will also help keep its balance sheet in order as it builds its newer rigs."
The deal has been pushed back—and has faced recent court challenges—but Marietta believes the companies are committed to getting the deal done, even if on a delayed time frame, and the $1 billion in a cash payment will be key to Nabors executing on its AC fleet upgrade.
Morningstar analyst David Meats
Denbury focuses on "tertiary recovery," meaning that after the majority of a well is drained, it comes in and squeezes the last bits of oil out using a CO2 flooding strategy.
It's able to recover the final third of the oil that's in these reserves. There aren't many companies that do this—most focus on the first and second phases of extraction—which means its services will always be in demand.
Meats said that while it does own reserves in Montana, North Dakota, Wyoming, Texas and other states, it doesn't own in the new shale plays that should be a greater drag on prices because they require more expensive drilling.
"They don't own the hot deposit," he said. "They're buying existing conventional fields and applying their technology to squeeze out extra production." That makes the company's drilling more predictable, since it's working on plays that have already proved to have oil.
It also has a conservative management team and announced recently that it was halving its capital expenditures in 2015 because of lower oil prices. "It's looking after its balance sheet, and that's good for investors," Meats said.
Capital One analyst Brian Velie
Until early December, QEP was both an oil and gas producer and a mid-stream company that processes, stores and transports the commodities it pulls out of the ground.
Going forward, though, it will be a pure play operator—it just sold off its mid-stream operation and generated proceeds of more than $2 billion just in time to explore what is shaping up to be a buyer's market as 2015 progresses.
It's not yet clear what it will do with the deal proceeds, but with a debt-to-EBITDA ratio of less than 1 time, Velie noted that it doesn't have to use those dollars to pay down debt—key at a time when balance sheet is the No. 1 factor for energy stocks. "They received an influx of cash at an opportune time. An opportunity that most other E&P operators do not enjoy," Velie said.
The company does need to move on acquisitions because its main oil play in North Dakota's Williston Basin is maturing, with three to five more years of drilling locations remaining. "They have a lot of dry powder now, and they're in a position where they can pick up some strong acreage," Velie said.
"From a downside risk standpoint, you hear people asking who's in trouble, and these guys aren't. They're not leveraged, so they can stand pat if they don't find something to buy right away," Velie said. He added that it does all hinge on management making the right buys.