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First-quarter revenues of S&P companies that have reported so far are running flat/slightly negative vs. the same quarter of 2012. One area that is still showing robust sales increases is the small and mid-cap domestic E&P space. One of the key reasons I am very positive on the prospects for this sector is that it offers significant growth potential at more than reasonable valuations. Here are two of my favorites picks in the E&P space.

Oasis Petroleum (NYSE:OAS) is an independent exploration and production company that engages in the acquisition and development of oil and natural gas resources in the Montana and North Dakota regions of the Williston Basin.

Here are four reasons why OAS is a good growth pick at $38 a share:

  1. The company is projected to have over 50% revenue growth this year and more than 25% sales increases in FY 2013. The stock sports a minuscule five-year projected PEG (.43).
  2. Consensus earnings estimates have moved up smartly for both FY 2013 and FY 2014 over the last month. The company has beat earnings estimates for four straight quarters. The average beat over consensus during that time period has averaged ~13%.
  3. The stock sells for just over 11x 2014's projected earnings. Its historical forward P/E ratio is much higher (23.2).
  4. Operating cash flow grew over 750% from the end of FY 2010 to the conclusion of FY 2012. The stock sells for just over 7x trailing 12 months operating cash flow.

Rosetta Resources (NASDAQ:ROSE) is another independent exploration and production company. It owns producing and non-producing oil and gas properties located in South Texas, primarily in the Eagle Ford shale region.

Here are four reasons why ROSE still has upside from $49 a share:

  1. Rosetta Resources was upgraded to Outperform with a $63-$67 price target, up from $52-$56, at Wells Fargo earlier this week. It also was initiated as a Buy earlier in May by BAML. The median price target of the 23 analysts who cover the stock is $60 a share.
  2. Analysts expect revenue growth of ~45% in FY 2013 and ~30% in FY 2014. ROSE has a five-year projected PEG of under 1 (.56) as well.
  3. The company is selling at less than 10x 2014's projected earnings. Its historical forward P/E ratio is significantly higher (20.0).
  4. The company more than doubled operating cash flow between the end of FY 2010 and FY 2012. The stocks sells for ~6x trailing 12 months operating cash flow.
Source: 2 Fast-Growing Energy Concerns To Buy Now