Oil swings have led analysts to recommend these 2 stocks

Key Points

• The oil sector has done an about-face turn this year after being the market's favorite in past years.
• Today, there is a specific pocket in the space that brings you the best odds of winning in the current environment. 
• Analysts and markets are set on this being the case, so don't fight these forces.

Once one of the best-performing sectors in the economy, on a three-year basis, energy stocks are now beginning to show some signs of weakness due to structural cracks. On a year-to-date basis, this former champion has lagged the S&P 500 by 8.0%, as judged by the Energy Select Sector SPDR Fund NYSEARCA: XLE.

Now that international and domestic developments have led the United States to seek new oil import partners, a couple of companies have risen to the occasion to gain analyst preference and recommendations. Names like Crescent Point Energy NYSE: CPG based in Canada, and ConocoPhillips NYSE: COP based in the U.S.

Playing chess is typically required to make money in a situation like this. You are probably not the average investor, so being three plays ahead of the market is your cup of tea, which is why the following will make perfect sense to you.

Playing Field 

Following the trends in the ISM Manufacturing PMI reports, you will notice an interesting divergence in the oil sector. Over the past quarter (July to September), the industry has been steadily expanding, though not in the ways it typically has done so in the past.

August and September reported a decrease in new orders; that is, even though rising oil prices have led to increases in inflation (a significant worry for the FED), there is no domestic initiative to fix this other than releasing reserves.

A lack of new orders has led to a similar decrease in production; again, this is domestic. However, the main divide comes in the employment section of the industry, which reported the most significant jump in hiring in the overall economy. If there is no production activity, how come the industry needs more workers?

Suppose the country's production levels are lackluster. However, demand is still pumping, as seen in the latest consumer-driven GDP expansion. In that case, there is only one reasonable outcome to the situation, right? Import more oil, which would drive employment in the transportation and refinery industries of the oil sector.

The question now becomes, where will the U.S. import its oil from? With the Russian and Chinese curbs and OPEC on a non-friendly tone lately, other partners like Canada will come to the podium, even unlikely names like Venezuela.

With Crescent Point being Canadian and carrying huge upside potential currently, the North American side seems taken care of. ConocoPhillips had landed a deal to sell Venezuelan oil to recover some debt losses, which makes it the prime ambassador in this new treaty.

Due Diligence

You can spread out both industries and both countries to figure out where the market expects these two names to be headed next. For Canadian exploration and production names, comparing Crescent Point to other competitors may shed some light.

While the sector trades at an average forward price-to-earnings ratio of 8.5x, which seeks to value the next twelve months of expected earnings, Crescent Point is valued today at a premium of 9.8x forward P/E, 15% above the sector average.

Why would markets be willing to overpay for this name? Just like you would pay a premium for comparable goods and services, it all comes down to what you expect to receive, right? Analysts point to a price target of $14.1 a share, implying a 78.1% upside potential from today's prices!

More than that, the stock is paying an annualized dividend yield of 3.8% today, which works to beat the latest 3.7% inflation rate experienced in the United States; not bad for a day's work, huh?

Now, moving on to ConocoPhillips, what is the market's thinking behind this name? The American sector carries an average forward P/E of 9.0x, one that ConocoPhillips beats with its 10.6x valuation, 17.8% above the industry.

The quality expectation for this name comes attached to a $136.4 price target, which requires the stock to rally by as much as 16.6%. This one is also driven by an earnings growth expectation of 26.1% for next year.

ConocoPhillips also understands the value of offering a competitive dividend in today's market, which is why they are willing to give you - a potential shareholder - an annual yield of 3.8% to beat inflation rates.

There you have it: enough data-driven strategies to put you ahead of 90% of the other players out there. Also, where the money will flow once the above-described geopolitical development takes place... Your pocket!