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The oil and gas sector has shown considerable signs of improvement after experiencing a brief dip in the last quarter of 2011. In fact, 2011 was not a good year for the oil and gas sector, or for any of the stocks listed within it. However, the oil and gas sector market outlook for 2012 depicts a different story. The oil and gas sector is suggested to show a positive trend, which will remain on a long-term range. But the fact that the sector suffers from volatility should not be discarded. The sector to a great extent depends on the global movements in oil and gas prices. Moreover, the political tensions prevailing on the global scenario can have great impact on oil prices.

With analysts favoring the oil and gas sector, many stocks have regained after suffering a fall in 2011. Apart from the stock fundamentals, one should also explore the future prospects associated with the respective companies, so as to ascertain one's buying decisions for the stocks. The underlying stocks, in my opinion, are optimal to be purchased in 2012 with a medium to long term perspective. These stocks are prominent stocks in the sector suggesting strong future prospects either through their fundamentals or through their making of acquisitions.

Marathon Oil Corp. (MRO)

Marathon Oil is one of the prominent business leaders in the oil and gas sector, engaged in exploration, refining, production, transportation, marketing and operations pertaining to integrated gas. The current market price of Marathon Oil is $33, which is approximately 80% short of its fair value range. With a single digit price earnings ratio of around 8.2, its price depicting a mere 6.7 multiples of free cash flow, and non-significant debt issues, a healthy margin of safety could be associated with the company's payment of dividends. Although the company's stock lost around 40% of its market capitalization in the third quarter of 2011, the stock has recovered strongly since then. The stock is currently above 60% of its 52-week low. Also, due to the volatility that exists in the oil and gas sector, the oil stocks are prone to be under-valued. Therefore, one cannot conclude the massive selling of the stock, as seen in the third quarter of 2011, is related to the company's fundamentals or to its business. In fact, the company has repurchased 12 million shares in the third quarter of 2011. Moreover, as Marathon Oil is currently priced at approximately 15% below its 52-week high, there prevails a lot of scope for the company to regain and even move further. In my opinion, the market outlook of the sector looks lucrative, wherein one could see a rise in oil prices as well as increase in its demand for consumption. I would recommend one purchase the stock at the current market price, with a long-term perspective.

Apache Corporation (NYSE:APA)
Apache has a current market price around $100. The company actively operates in seven regions around the globe, namely Central USA , Gulf Coast (onshore and offshore), Egypt, Canada, Australia, and the North Sea, in the development, production and exploration of oil and gas. The company has recently crossed its 100-day moving average, depicting it strength on the technical front. Fundamentally, the company has price earnings to growth of around 0.96, return on equity of around 16.80. Along with good technical uptrend coupled with descent fundamentals, the stock is expected to profit in 2012 from its North American production. The company currently operates 24 rigs, and owns 1.5 million acres in the Permian Basin. The company is currently priced at 2.9 times of its Earnings Before Interest, Taxes, Depreciation and Amortization ratio. Its 2012 earnings is projected at $12.31. However, the most significant attribute of this stock does not only lie in the current assets that it holds, but in its prospective owning of 254,000 net acres through acquisition of Cordillera Energy Partners III LLC, having operations in Texas, and Oklahoma. Owning liquid-rich acreage in the Anadarko basin is definitely a positive news for the future prospects of Apache Corporation. With the oil and gas sector depicting a positive outlook for 2012, I would recommend to purchase this stock at its current market price, keeping a long-term perspective.

Chevron Corporation (CVX)

Chevron Corporation is one of the largest oil and gas companies in the world, involved in oil exploration, refining, trading, marketing, power, lubricants and many more other activities in the energy sector. Chevron Corporation is currently quoting at $102.94. The company has strong fundamentals, depicting seven-year revenue growth of 7% , seven-year Earnings Per Share Growth of 11.4%, a Dividend yield at 3.03% and a seven-year Dividend Growth of 10.5%. Total Debt to Equity is only 0.8. Its Debt to total Capital stands lower than 45%, despite paying its investors increased dividends. However, the stock has a low Price Earnings ratio of approximately 8. This mega cap company has consistently been increasing its dividend payout for the last 24 years. With an equally strong balance sheet, I would certainly recommend buying Chevron Corporation at the current market value. In my opinion, Chevron Corporation is a long-term stock, irrespective of volatility in oil prices and the risks of litigation.

Devon Energy Corporation (NYSE:DVN)

Devon Energy Corporation has its business primarily in the development, production and exploration of natural oil and gas. At its market price of $66, I would recommend buying Devon at its current levels. My recommendation is based on my view that the oil and gas sector will be performing at its best levels in early 2013. In my opinion, lighter restrictions and regulations on the oil sector, would enable the companies of the sector to perform much better from the current levels. A strong 18% year-on-year earnings per share growth was depicted by Devon Energy Corporation in its third-quarter performance. An increase of 26% was depicted in the company's continuing operations cash flow. Devon Energy's joint venture with Chinese company SIPC, wherein SIPC will take 1/3 interest in the New Venture properties of Devon Energy, is the major catalyst Devon stock's prospective upswing. Moreover, its joint venture with SIPC instills certainty to Devon's investment projects , thereby further garnering confidence. An improved outlook has enabled the company to tap certain unconventional shale plays. On the whole, I would recommend buying Devon at current levels, for the medium to long-term range.

EOG Resources, Inc. (EOG)

EOG Resources, is engaged in the development, production, and exploration of natural gas and oil. With the current market price at $106, EOG Resources, Inc. has Return on Assets of 0.81% and a Return on Equity of 1.59%. The company's last 5 years average of the minimum forward price-to-earnings multiple is 29.08, whereas its average price-to-earnings multiple is 44.08. EOG Resources has shown an increase of 7.5% in 2012. I perceive the market outlook for oil and gas sector to be very optimistic for 2012 as well as 2013. Moreover, the company's valuation stands at approximately $434, using the minimum earnings multiples. Considering the stock growth over the next 5 years to be around 54%, in my opinion, EOG Resources is a good buying option for the medium to long-term range.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Oil And Gas Watch: 5 Picks For The Long Haul