1. With natural gas prices likely to remain depressed for at least the next two to three years, producers have scaled back drilling in the Haynesville Shale and other dry-gas plays in favor of the Eagle Ford Shale and other liquids-rich basins. This great migration of pressure pumping assets to liquids-laden plays from dry-gas fields will cause profit margins to moderate in the near team. Investors shouldn’t expect the region to drive earnings growth in coming quarters. With growth in North American profit margins expected to moderate, we are cutting Growth Portfolio holding Baker Hughes (NYSE: BHI) to a hold.

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2. Mid-Con Energy Partners LP (NSDQ: MCEP) owns about 9.9 million barrels of oil-equivalent reserves in Oklahoma, Kansas and Colorado. Crude oil accounts for 98 percent of the master limited partnership’s (MLP) estimated reserves, a favorable asset base at a time when natural gas prices continue to hover near record lows. Buy Mid-Con Energy Partners LP for its high yield and high-quality, oil-heavy asset base.

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3. Pacific Drilling (NYSE: PACD) went public in November 2011 and has yet to capture investors’ attention. As other operators sign new contracts for rigs at day rates of $600,000 or more, investors focus on Pacific Drilling and other names that have significant uncommitted rig capacity. Buy Pacific Drilling up to 11.

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4.  I am cutting recommendation Knightsbridge Tankers (NSDQ: VLCCF) to a hold. The company owns a fleet of oil tankers and dry-bulk ships used to carry commodities such as iron ore and grain.

The charter rates for both tankers and dry-bulk ships have weakened in recent quarters because of a persistent oversupply. The problem isn’t a lack of demand; rather, shipping firms ordered too many new ships during the 2004-07 boom years, and a glut of new ships is now entering the market.

Knightsbridge Tankers is insulated from the risk of near-term weakness in rates by its long-term charter contracts. These lease agreements signed should enable the ship owner to maintain its $0.50 quarterly dividend through at least the end of 2013. That’s equivalent to a yield of about 13.4 percent at current prices.

But the stock will tread water at best until sentiment toward the tanker industry improves. For that to happen, ship owners will need to scrap some of their fleet. We expect the tanker market to remain oversupplied until 2015. An investment in Knightsbridge Tankers will be dead money until that happens.

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5. Investors should also cover their short position in Diamond Offshore Drilling (NYSE: DO) for a loss of 6.3 percent. The company’s fleet of older rigs is disadvantaged in the current environment, leaving the stock with little room for upside. But the stock could enjoy a bump if day rates on deepwater drilling rigs ticks up. Investors should still avoid Diamond Offshore Drilling.

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