Sparks recommends two small-cap exploration firms: PetroQuest (PQ) and Goodrich Petroleum (GDP).

I usually want a stock to score highly in four out of five categories before giving it much consideration: earnings momentum, earnings quality, price momentum, free cash flow and return potential.

This week, only three stocks went four for five, and I’ve talked about them all before: W&T Offshore (WTI) , Pitney Bowes (PBI) and Rent-a-Center (RCII) . As I look for new investment ideas, I’m left with three options, each of which has significant drawbacks.

1. Go short
2. Change strategy
3. Stay on the sidelines

I seldom short stocks, but I’ll probably try to scratch out some extra gains by writing covered calls on stocks like Ansys (ANSS) that I like long-term, but that look a little stretched in the near term. I also will likely leave a little cash standing by to put to work when conditions are more favorable. But like many investors, I generally plan to stay long and close to fully invested. In markets like this one, that means shifting gears a little bit.

Without straying too far from my comfort zone, I’m considering letting my winners ride (and possibly paying up for those like WTI that meet my criteria but have seen strong rallies), searching for deep value plays, and possibly even making a speculative play or two.

Disclosure: At the time of publication, William Trent has a covered call position in Ansys (ANSS) and has written put options against the shares of NutriSystem (NTRI).

Castellini is especially enthusiastic about energy exploration companies, and Southwestern Energy (SWN - Annual Report)  tops his list.

“Southwestern Energy…controls the Fayetteville shale development in Arkansas, which is one of the nascent but rapidly-growing basins for natural gas production,” he explained.  “Southwestern dominates this play today; they’re ramping rigs, and we think they’ll probably grow production 35 to 40 percent a year.  That sounds like a growth stock to me.”

 It doesn’t make it into my models, so I have nothing to add.

We can all agree that the jobs report was pretty lousy. On a year-over-year basis, the growth in employment is barely staying positive.

However, as Jim Cramer likes to point out, there’s always a bull market somewhere, and regular readers probably know I like to use the economic reports as a source of stock ideas. Until they launch an “Economy ETF” (believe me, it won’t be long before somebody tries), that means sifting through the reports to find the industries and companies that are most poised to benefit from the prevailing trends. In this morning’s jobs report, that was pretty easy. According to the Bureau of Labor Statistics report, only five industries are showing statistically significant job growth:

• Hospitals
• Ambulatory health care services
• Nursing and residential care facilities
• Oil and gas extraction
• Pipeline transportation

I’ll bet you noticed the same pattern in those industries that I did.Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Web Extras for CNBC.com Readers:

Votruba also likes Woodward Governor (WGOV) and Unit Corporation (UNT).

In the models I follow, Woodward Governor does pretty well.  It scores among the best for earnings momentum, earnings quality and price momentum. However, its return potential is among the worst.

Unit has a similar profile, though the breakdown differs. It merits high rankings for earnings momentum, price momentum and return potential but poorly for free cash flow.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Here is a look at the companies in the S&P 500 Energy sector that have benefited the most from the rally in crude oil.

Although there were five coal stocks in the same article with higher returns than Hess over the six months, it looked like Hess was the best choice available.

All this talk on the energy crisis has led me to sell my own shares in the oil ETF (USO). However, I still think the long-term trend is up.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

For CNBC.com readers, Muggia also recommends Chesapeake Energy (CHK - Annual Report).

In my models, Chesapeake scores among the best for price momentum, among the worst for free cash flow, and in the middle of the pack for earnings quality, earnings momentum and return potential.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Recommendations:

Dynegy (DYN), NRG Energy (NRG),  Allegheny Energy (AYE).

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Government economic reports can do more than just indicate the state of the economy. Since many of the reports include industry-level data, digging deeper in the reports can help investors find specific industries to consider more closely. For example, the Bureau of Labor Statistics, which prepares the PPI report, provides detailed information on an industry basis.

Since I wrote about the PPI data in September, the pricing power has shifted to some different industries. Therefore, I thought an update would be in order.

Some of the industries that look interesting are petroleum refineries, industrial gases, computers, computer storage devices, and line-haul railroads.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned.

photo credit: Gastev

This article is a reprint of my February 19, 2008 RealMoney column

After peaking above $49 per share last year, refiner Frontier Oil (FTO) sunk to intraday lows in the $20’s last month before starting a rally on the news of Valero’s (VLO) positive outlook on the latest conference call. My biggest surprise, looking over the data for Frontier and the industry, is why it hasn’t rallied even more.

First of all, Valero indicated that “Current industry conditions are setting the stage for rebounding gasoline margins.” If true, that would be equally positive for Frontier and others. Not that I don’t believe Valero, but I thought a check of the PPI industry statistics could provide an unbiased second opinion.

Petroleum Refineries PPI, 12-Months Percent Change

Source: Bureau of Labor Statistics

Lo and behold, year/year price increases for petroleum refineries have suddenly shot straight up. If that doesn’t set the stage for rebounding margins, what will?

Hardly a week later, there was actually speculation that Valero would buy Frontier. However, according to the Reuters article, Fadel Gheit, an oil analyst with Oppenheimer & Co, also questioned the rationale behind Valero buying Frontier, especially since Valero has already sold one refinery and has said it would sell two and maybe three others.

Sold a refinery, you say? That sounds like a ripe opportunity for a comparables analysis to see how Frontier’s valuation stacks up against an arms-length transaction between industry experts. And at first glance, Frontier doesn’t come out looking so hot.

Valero’s Lima, Ohio refinery was sold last year to Canada’s Husky Energy (HSE.TO) for $2.1 billion. Lima’s 165,000 barrel per day stated capacity being quite close to Frontier’s total capacity of 162,000 barrels per day, the comparison initially looks valid. And with Frontier’s enterprise value at $3.6 billion, the implications could be that Valero’s management got ripped off, Frontier is overvalued, or the assets aren’t really comparable.

Valero is a good company, and I don’t believe its experienced managers got ripped off. The other two theses can be tested by comparing the assets. According to Husky’s road show slides, it seems Lima was something of a fixer-upper. Running well below the stated throughput, its sales and profitability were not close to those of Frontier. Taking the 2006 performance as an example, I was able to compare the valuation relative to various fundamental metrics.

Sources: Company filings, compiled by William A. Trent

Although Frontier looks more expensive on the basis of throughput or sales, its full-throttle capacity utilization has resulted in a far more efficient operation. As a result, Frontier is cheaper based on EBIT or EBITDA, which are the valuation measures most frequently used in the industry.

Of course, running at full capacity also means there is little room for further improvement other than through the commodity prices themselves. Even considering a fair valuation, that could mean there is significantly more downside risk than potential upside.

I also looked at Frontier on the basis of my favored valuation tool, its free cash flow yield. In this regard, Frontier’s yield on trailing free cash flow is about 6.2%, which is sufficiently above the yield on five-year Treasuries that I don’t need significant growth to justify a purchase. The potential rebounding margins, in other words, is a bonus.

Disclosures: None