Energy stocks have been among the market's worst performers, and arguably, that's put many of the sector's leading stocks in the stock market's bargain bin. While crude oil prices might never get back to their past highs, an upward turn could transform Transocean (RIG 4.15%), Dawson Geophysical (DWSN 10.23%), and Encana (OVV 0.12%) into profit-friendly investments to buy on sale.

A business finding its footing

Todd Campbell (Transocean): Since we're talking about bottom-fishing energy stocks, it's fitting that my pick is Transocean, an offshore-drilling services company that operates a fleet of vessels used in harsh deepwater oil and gas exploration.

An offshore rig drills for oil.


Over the past couple of years, falling oil prices have been bad news for offshore-drilling activity, and thus, Transocean's sales and share price. Onshore wells can be developed more quickly and cheaply, and as a result, oil and gas companies large and small have focused on land projects to meet supply.

RIG Revenue (TTM) Chart

RIG Revenue (TTM) data by YCharts.

Admittedly, it's anyone's guess when that will change, but there are signs that Transocean's business is finding its footing. According to management, breakeven for offshore exploration and production (E&P) is falling toward $50 per barrel, or lower, and that's making deepwater drilling more competitive to land-based shale projects.

If so, then it wouldn't take a lot to send this company's shares meaningfully higher. Transocean has used the downturn to jettison non-core assets, boosting its balance sheet, and cutting costs, improving its margin. In the past, a turn up in offshore demand has led to rapidly rising rig day rates. If that happens again, a leaner-and-meaner Transocean could be positioned to drop an even greater share of revenue to its bottom line than it has previously.

Admittedly, Transocean is a patient person's investment right now, but if things improve for the sector, it could be one of the best stocks to own.

Shake up your energy portfolio with this stock

Dan Caplinger (Dawson Geophysical): When oil prices are weak, it hurts more than just oil and natural gas producers themselves. It also hits the companies that offer exploration and production specialists the services they need in order to drill wells and pull oil and gas out of the ground. Dawson Geophysical provides seismic services to companies that are looking for better guidance on where the best locations are to search for valuable oil and gas deposits. When times are good, Dawson sees huge demand for its seismic crews to go out in the field and tell clients what they need to know to strike it rich.

For the past two years, Dawson has been running well below full capacity, preventing it from reaching its full potential. More recently, Dawson has started to see signs of life in the industry, with a better winter season than expected in the Canadian North and greater levels of drilling activity in key areas like the Permian and Delaware Basins of West Texas.

Dawson also has worked hard to control internal costs, becoming leaner and more efficient, and thereby putting itself in a better position to profit once conditions in the energy sector become more favorable. Crude prices have remained volatile, and it's uncertain whether they've hit bottom yet. When they do, though, Dawson Geophysical will see a lot more business from hungry producers looking to make the most of their energy assets.

A land rig next to dollar signs.


A growing supply of low-cost oil

Matt DiLallo (Encana): Canadian oil and gas producer Encana spent the bulk of the recent market downturn focused on driving down costs and improving its balance sheet so it could thrive at lower oil prices. That hard work is now starting to pay off. This first became evident last October when the company unveiled a new five-year plan outlining its potential to create value in the current pricing environment.

The foundation of that plan is the inventory of more than 10,000 future drilling locations that it put together that can generate a minimum of a 35% after-tax return at $50 oil. The company believes that, by focusing on drilling these premium-return wells, it could deliver 60% production growth and a 300% jump in cash flow by 2021, as long as oil averaged $55 per barrel. That forecast is quite impressive, since many rivals can't break even yet at that oil price.

However, Encana has since gone on to significantly outperform its ambitious plan thanks to further efficiency gains and innovations. Because of that, the company is on pace to exceed its targets, and now believes it can achieve its plan at just $50 oil going forward. That puts it in the position to grow at a faster pace than most rivals in the current pricing environment, and gives the company the potential to deliver even more upside should prices rise in the future.

This ability to outperform makes Encana a top energy stock to consider buying now that the oil market appears poised to improve in the coming years.