Hydraulic fracturing, or fracking, has proven to be one of the keys to unlocking a treasure trove of oil and gas trapped in tight rock formations. It has almost single-handedly turned the U.S. into an energy export juggernaut.

While fracking has fueled significant production growth in the country, it hasn't helped boost the stock prices of most energy companies. That's because most focused on growing no matter the cost instead of aiming to create value for their shareholders. That approach, however, has started to change in recent years, as many fracking-focused producers are using the process to generate free cash instead of even more production. That potentially sets these companies up to produce strong returns in the coming year. Three that stand out this January are EOG Resources (NYSE:EOG)Devon Energy (NYSE:DVN), and Diamondback Energy (NASDAQ:FANG).

Drilling rigs lit up at dusk.

Image source: Getty Images.

The fracking king

EOG Resources is one of the country's fracking leaders. While the company -- like many of its peers -- initially focused on growing its output as fast as it could, it has shifted its aim toward earning premium returns on the wells it drills. As a result, EOG Resources has become one of the lowest-cost producers in the country. 

It currently only needs oil to average around $50 a barrel to provide it with enough cash flow to grow its production at a double-digit rate while also supporting its fast-growing dividend. Since crude oil is currently in the $60s, it's on track to produce significant free cash flow in the coming year. EOG plans to use that money to pay off debt as it comes due, allowing it to strengthen its already top-notch balance sheet. The company believes that its strategy will enable it to produce market-smashing returns over the long haul, making it a top fracking stock to buy this month.

Opening the taps

Devon Energy has spent the past few years transitioning into a low-cost, U.S-focused oil growth company. It completed its transformation last month by selling its remaining low-margin gas assets. Now it's on track to start generating lots of excess cash this year.

In Devon's estimation, it can fund its current drilling program and dividend as long as oil averages $48 a barrel this year. As such, it's on course to produce about $675 million in free cash this year if oil stays around its current $60-a-barrel level. Devon plans on using all that money to continue buying back stock, which could catapult its shares higher this year.

Hitting an inflection point

Diamondback Energy has significantly grown its scale over the years by acquiring drillable land in the oil-rich Permian Basin. That has enabled it to drive down costs and improve profitability. This strategy should start paying some real dividends in 2020.

In Diamondback's estimation, it can produce enough cash at $45-a-barrel oil to fund its growth-focused drilling program and its dividend. Because of that, it's on track to generate a significant amount of free cash flow in 2020. At $55 a barrel, for example, it can match Devon's level of producing $675 million in free cash flow this year, all of which it intends on returning to shareholders via its stock buyback program. With crude currently well above that level, Diamondback is on pace to produce even more cash this year, which it will likely return to investors. That's why most analysts believe its stock has the biggest upside ahead in 2020.

Three stocks well positioned to enrich investors in 2020

These three fracking stocks have all worked hard to enable their operations to thrive at lower oil prices. As a result, they're on course to produce a significant amount of free cash flow in the coming years since crude is currently well above their breakeven levels. That sets these companies up to return a gusher of cash to their investors this year via dividends and share buybacks, which could help them produce market-beating total returns. This upside potential makes them the top fracking stocks to buy this month.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.