For the first time in a long time, the oil rig count grew last week, and although it went just a touch higher, the overall count is still down huge from this time last year and especially two years ago. With the spot price back near $50, there is a glimmer of hope, but the bottom line according to experts is that U.S. crude output will continue to decline until year’s end, as any producers responding to price increases will take months to get back online.

In a new research report, Merrill Lynch says the region that is best prepared to return to growth given current productivity gains is the Permian Basin in West Texas. We screened for stocks with the biggest footprint there that are also rated Buy at Merrill Lynch. We found three that make good sense for investors now.

Concho Resources

This is one of the top energy plays in the Permian Basin in West Texas, and it is a Wall Street favorite. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.

Earlier this year the company recently announced three separate transactions that enhance its position in the southern Delaware Basin, high grade the company’s portfolio and reduce net debt:

1. It agreed to acquire approximately 12,000 net acres complementary to its core North Harpoon prospect in Ward and Reeves Counties, Texas, from a private operator for total consideration of approximately $360 million, through a combination of common stock, cash and drilling carry.
2. Concho Resources completed an acreage exchange with Clayton Williams Energy, consolidating 21,000 net non-operated acres into a concentrated, operated position adjacent to the Concho’s Big Chief prospect in Reeves County.
3. The company also agreed to sell 14,000 net acres in Loving County, Texas, for cash proceeds of $290 million.

The aggregate impact of these transactions is neutral to Concho’s 2016 capital and production outlook.

The Merrill Lynch price target for the stock is $133. The Thomson/First Call consensus target is $128.47. The stock closed Friday at $119.35 per share.

Pioneer Natural Resources

Many Wall Street analysts love this stock for a pure crude oil play, and it recently was upgraded by Deutsche Bank and Citigroup. Pioneer Natural Resources Co. (NYSE: PXD) engages in the exploration and production of oil and gas in the United States. The company produces and sells oil, natural gas and natural gas liquids. It has operations primarily in the Permian Basin, Eagle Ford Shale and West Panhandle field in the Texas Panhandle.

Pioneer is a huge player in the Permian basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain the number one player in the Permian as it expects to deliver production growth of 12% or more in 2016, compared to the company’s previous production growth target of 10%. The higher forecast growth rate reflects improving Spraberry/Wolfcamp well productivity.

Pioneer investors are paid a tiny 0.05% dividend. Merrill Lynch has a $185 target price, and the consensus figure is set at $187.29. Shares closed trading on Friday at $159.75.

Cimarex Energy

This company is a top play for investors looking to the Permian Basin, and it is another top pick at Merrill Lynch. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States. The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.

Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.

Investors receive a small 0.38% dividend. The $118 Merrill Lynch price target compares with the consensus price objective of $122.91 and Friday’s closing share price of $115.92.

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All these stocks have had big runs since posting lows back in January and February. Investors may want to scale capital in slowly and look for a market pullback to add shares at lower price levels.

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