While crude oil bottomed out early last year below $30 a barrel and is now in the low $50s, the market isn't in recovery mode just yet. As a result, investors still have the chance to buy oil stocks at rock-bottom prices in hopes of scoring big gains when the cycle finally turns higher.

While that rising tide should lift the entire industry, we think ExxonMobil (NYSE:XOM), Marathon Oil (NYSE:MRO), and Encana (NYSE:ECA) offer some of the most compelling opportunities for upside. That's because all three can thrive at current prices, which makes them all the more likely to produce top-tier returns when crude turns higher. 

Still trading at a historic discount

Tyler Crowe (ExxonMobil): Wall Street looks like it is losing patience with oil and gas producers as of late. When oil prices hit their low in January 2016 and started to recover from there, it would appear that many people thought the recovery would follow the path of most other recoveries and lead to steadily rising oil prices. That hasn't been the case this time because the cost of shale drilling in North America has declined so much. With the breakeven for most shale wells in the $50-a-barrel range and the ability to get a shale well producing in a matter of a few weeks, it has kept oil prices from rising steadily. 

Three oil pumps at sunset.

Image source: Getty Images.

For ExxonMobil, it has led to its stock price dropping back to incredibly low levels. Its price to tangible book value of 1.84 times isn't that far off the early 2016 low -- it should also be mentioned that prior to 2016, the last time ExxonMobil's stock was valued that low was before 1990. That valuation is in spite of the fact that per-share earnings are more than double what they were 18 months ago, and there is reason to believe things are going to get better from here

Perhaps shale will play such a pivotal role in the global oil market that we never see $100 a barrel again. What we have seen so far is that companies have learned to adjust to these lower price environments -- ExxonMobil's average breakeven price is less than $40 a barrel for most of its production. The company has a long history of generating superior returns, and its stock has such a low price to tangible book value and a dividend yield approaching 4%. Those elements suggest buying ExxonMobil today could be a great bet on the next phase of the oil industry. 

Going bottom fishing

Sean O'Reilly (Marathon Oil): As one of the premier independent oil and gas producers in the U.S., with reserves of 2.1 billion barrels of oil equivalent, Marathon Oil is a fantastic energy stock to buy at the bottom of the cycle. Marathon has had a tough few years, along with practically every other E&P company, but has made some moves recently that have set it up for future success.

First, investors will be happy to hear that debt is no longer a concern for the foreseeable future. In July, the company issued $1 billion of senior notes with a 4.4% coupon and 2027 maturity. The proceeds were used to retire several higher-yielding bonds with maturities ranging from now through 2019. Not only does the company no longer have to worry about debt coming due anytime soon, but it will now also be saving about $60 million in interest per year. Investors looking for a way to play a rebound in the oil industry will also be interested to know that Marathon generated $555 million in free cash flow (FCF) over the 12 months ended June 30, 2017, more than enough cash to cover total dividends over the period of $170 million. With a respectable dividend yield of 1.68% and share trading for 80% of tangible book value (just where you want to be at the bottom of a cycle), Marathon Oil is an enticing pick for the bottom of the current oil cycle.

An oil pump with the mountains in the background.

Image source: Getty Images.

Just starting to turn

Matt DiLallo (Encana): Canadian shale driller Encana has undergone a dramatic transformation over the past few years. The company parted with several lower margin gas-focused assets and replaced them with high-growth, high-margin oil plays. As a result, the company is starting to turn the corner and is poised to deliver high-return growth as the oil market begins its long-awaited rebound.

Thanks to Encana's portfolio maneuverings, as well as a combination of efficiency gains and continued innovation, the company now has 11,000 future drilling locations that can earn it premium returns of 35% after tax at $50 oil. The company estimates that its high-return inventory will fuel 60% production growth and a 300% increase in its cash flow by 2021, while only burning through a fraction of those locations. Furthermore, the company can fuel that growth on just $50 oil, which is a $5-per-barrel improvement from when it initially unveiled its plan last year. That's one of the lowest breakeven levels in its peer group and positions the company to outperform its higher-cost rivals if crude goes nowhere.

Meanwhile, if oil prices recover further, Encana has the potential to accelerate its growth rate given its extensive inventory of low-cost wells. That suggests the stock could fuel big-time returns for shareholders who believe that the energy cycle is just about to make an upward turn.

Matthew DiLallo has no position in any of the stocks mentioned. Sean O'Reilly has no position in any of the stocks mentioned. Tyler Crowe owns shares of ExxonMobil. The Motley Fool owns shares of ExxonMobil. The Motley Fool has a disclosure policy.