In this issue:

The energy correction has played out in our portfolios about as expected, with almost all Conservative picks holding up exceptionally well, many Aggressive recommendations sliced to the bone and Growth selections somewhere in between those two extremes.

The risk of another down leg remains high given the market’s nervousness and continuing weakness in energy prices.

But we feel sentiment has hit a bearish extreme unsupported by energy production fundamentals, which will begin to constrain growth in supply at prices much below current ones.

So we’re taking the opportunity to greenlight the accumulation of stocks in our updated rankings of the 15 Best Buys as well as eight other prior recommendations that now offer excellent value.

We suggest you buy in several installments over time, in case another bout of panic results in even bigger discounts.

One thing not worth panicking about is the recent attention to reserve reporting by the shale drillers, contrasting the proved reserves reported to the Securities and Exchange Commission (SEC) with the much larger potential reserves figures promoted to investors. Managers who have delivered over time are likely to continue doing so.

To show how hated small-cap shale drillers have become, we’ve dug deep into the accounting of Emerald Oil (NYSE: EOX) to assess its valuation. By any plausible yardstick, the stock is now much too cheap after losing more than half its value since the end of August. But don’t take our word for it — check out our math.

Finally, we’re including in this issue the Buy recommendations for Spectra Energy (NYSE: SE) and Delek Logistics (NYSE: DKL) made since the last issue. These conservative midstream investments have returned 5% and 8%, respectively, since the Oct. 16 recommendation, and we think they’re just getting started.     

Portfolio Update

• National Oilwell Varco (NYSE: NOV) upgraded to Buy below $82

• Energy Transfer Partners (NYSE: ETP) upgraded to Buy below $70

• Schlumberger (NYSE: SLB) upgraded to Buy below $107

• EOG (NYSE: EOG) upgraded to Buy below $100

• ConocoPhillips (NYSE: COP) upgraded to Buy below $78

• Energy Transfer Equity (NYSE: ETE) upgraded to Buy below $66

• Enterprise Products Partners (NYSE: EPD) upgraded to Buy below $42.50

• Devon Energy (NYSE: DVN) upgraded to Buy below $70

• EQT (NYSE: EQT) upgraded to Buy below $99

• Jones Energy (NYSE: JONE) upgraded to Buy below $16

• Carrizo Oil & Gas (NASDAQ: CRZO) upgraded to Buy below $59

• Oasis Petroleum (NYSE: OAS) upgraded to Buy below $38

• Cabot Oil & Gas (NYSE: COG) upgraded to Buy below $35

• SunEdison (NASDAQ: SUNE) upgraded to Buy below $21

• First Solar (NASDAQ: FSLR) upgraded to Buy below $65

• Targa Resources (NYSE: TRGP) upgraded to Buy below $140

• AmeriGas Partners (NYSE: APU) upgraded to Buy below $51

• Chesapeake Energy (NYSE: CHK) upgraded to Buy below $26

• Whiting Petroleum (NYSE: WLL) upgraded to Buy below $70

• Penn Virginia (NYSE: PVA) upgraded to Buy below $9.50

• Emerald Oil (NYSE: EOX) upgraded to Buy below $4.50

• Gastar Exploration (NYSE: GST) upgraded to Buy below $4.75

• Rex Energy (NASDAQ: REXX) upgraded to Buy below $11

Commodity Update

The price of oil and gas once more declined from our previous report, but seems to be finding some stability now. West Texas Intermediate (WTI) traded down $5.32 over the past two weeks to $82.57/bbl as of Oct. 22. Brent was down $4.80 over the past two weeks to $86.20/bbl. Natural gas prices were recently trading at $3.69 per million British thermal units (MMBtu), down $0.23/MMBtu from our previous report. Natural gas has traded higher year-over-year nearly all year, but with inventories now in decent shape entering the winter heating season it has dropped $0.08/MMBtu below the price of a year ago. At this point inventories are still about 10% below normal, but natural gas prices will largely be dictated over the next six months by the severity of the coming winter.  

In Other News

• Total (NYSE: TOT) CEO Christophe de Margerie was killed when his private jet hit a snow plow as it was taking off from Moscow’s Vnukovo airport

• The British Columbia government is reducing its proposed liquefied natural gas (LNG) tax to entice energy companies to move forward with projects in the province

• Rhino Resource Partners (NYSE: RNO) became the latest casualty of weakness in the US coal markets, slashing its Q3 distribution to $0.05/unit, down from the previous quarter’s distribution of $0.445/unit. The unit price dropped more than 50% on the news

• Halliburton (NYSE: HAL) sees no slowdown in drilling activity despite the precipitous drop in oil prices

• Continental Resources (NYSE: CLR) CEO Harold Hamm isn’t worried too much about plunging oil prices, saying that the market isn’t in a glut and that Saudi Arabia is trying to talk down oil prices to regain market share.