The last year and a half has been a tumultuous one not just for the financial sector but for the energy sector, as well. Just over a year ago, crude oil prices were topping out above $140 a barrel before starting a downward spiral that left prices bottoming out around $35 per barrel earlier this year. The precipitous decline in the price of crude, coupled with restricted access to the credit markets, caused many oil-related stocks to take a beating. The Energy Select Sector SPDR (XLE), an exchange-traded fund that tracks an index of energy-related stocks, fell more than 50% from its highs in the summer of 2008 to its lows in the early spring of 2009.

As the outlook for the economy began to improve, the price of crude oil started to rise (even doubling since it bottomed earlier this year), lifting the price of many stocks in the energy sector. Several of our managers viewed this as a sign that it was all right to step back in, loading up with high-conviction purchases of a number of energy companies. Surprisingly, though, their weighting in the sector continues to be rather light, at around 9% of the total holdings of our 26 managers. The top energy holding continues to be ConocoPhillips (COP), which several of our managers, including Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B), were piling into during the third and fourth quarter of last year.

Although, in hindsight, the move into ConocoPhillips looks to have been a little premature, given that the stock lost more than 50% of its value from the third quarter of 2008 through the first week of March of this year, these managers were operating in an environment where oil had just dropped from an all-time high of nearly $150 per barrel during July 2008 to less than $100 per barrel at the end of the third quarter. As oil has rallied this year, managers like Berkshire and Davis NY Venture (NYVTX) have actually been trimming their stakes, while others like Yacktman (YACKX), Sound Shore (SSHFX), Alleghany (Y), and Amana Trust Income (AMANX) have been increasing their stake in the firm.

Top 10 Energy Holdings of Our Ultimate Stock-Pickers

	Star Rating	Fair Value Uncertainty	Moat	Price ($)	Price/FV	MktCap ($mil)
ConocoPhillips COP	4	Medium	Narrow	45.50	0.80	67472
Occidental OXY	3	High	Narrow	75.37	0.89	61108
Schlumberger SLB	3	High	Narrow	57.13	1.33	68432
EOG EOG	4	Medium	Narrow	81.05	0.83	20419
Devon Energy DVN	4	High	Narrow	64.32	0.67	28545
Chevron CVX	4	Medium	Narrow	68.81	0.83	137999
Baker Hughes BHI	3	Very High	None	41.65	0.97	12906
Can Nat Res CNQ	3	High	Narrow	64.31	0.84	34860
XTO XTO	4	Medium	Narrow	39.52	0.75	22929
EnCana ECA	3	Very High	Narrow	55.49	0.85	41679

Stock Price and Morningstar Rating data as of 10-01-09.

No Bargains in Top Energy Purchases
Much like the top 10 energy holdings of our Ultimate Stock Pickers, the top 10 conviction purchases by our managers are currently yielding no ideas worth purchasing right now. Although we have seen more than a handful of high-conviction buys among these 10 names, our analysts currently believe that nearly all of them are fairly valued at today's prices. That's not to say that they don't have competitive advantages that will aid them longer term (as evidenced by the narrow economic moats that our analysts believe they have around their businesses), it's just that current market prices aren't offering investors a large enough margin of safety to consider buying them.

10 Energy Stocks Our Top Managers Have Been Buying

	Star Rating	Fair Value Uncertainty	Moat	Price ($)	Price/Fair Value	Fund Owners
ConocoPhillips COP	4	Medium	Narrow	45.50	0.80	15
Hess HES	3	High	Narrow	52.40	0.79	6
Williams WMB	3	Very High	Narrow	16.89	0.80	7
Schlumberger SLB	3	High	Narrow	57.13	1.33	7
Nustar NS	3	Medium	Narrow	51.17	0.91	4
Nat Oilwell NOV	3	High	Narrow	41.22	0.86	9
Petrobras PBR	3	Very High	Narrow	44.43	1.01	4
Anadarko APC	3	High	Narrow	60.01	0.90	4
Plains Exploration PXP	3	Very High	Narrow	25.81	0.66	4
EnCana ECA	3	Very High	Narrow	55.49	0.85	4

Stock Price and Morningstar Rating data as of 10-01-09. That said, we would continue to watch the two names at the top of the list-- ConocoPhillips and Hess (HES) --both of which saw significant new money purchases during the most recent period. As you may recall, we believe that portfolio managers send signals about how they feel about a particular stock by the amount of money they're willing to commit to it at any given time, which is why we focus on both purchases and sales by our top managers. Much as we assess the relative attractiveness of an individual security by how many funds hold it, whether the funds' managers have been adding to or subtracting from their positions, and the percentage each security makes up of a portfolio, we also like to look at new money purchases and outright sales, which we feel offer additional insight into the thinking of managers about their holdings. Given the level of interest in both ConocoPhillips and Hess, we thought it would be good to take a look at our analysts' current thinking on the stocks:

ConocoPhillips (COP)
Our analyst, Allen Good, believes that ConocoPhillips has been affected by the significant drop in commodity prices during the last year, which has left the company in a somewhat weaker financial position. The energy giant was also guilty of making acquisitions based on relatively high resource prices before the recession kicked in. Although the firm has battened down the hatches on the acquisition front, ConocoPhillips still faces significant project development challenges in part because of these acquisitions. At market prices below $40 per share, though, Allen believes that the firm's fundamental strengths and cash-flow potential should make it a compelling buy.

Hess (HES)
According to our analyst, Catharina Milostan, Hess has amassed a promising collection of high-profile oil and gas projects to drive long-term production growth. The E&P unit now takes center stage as it generates about 90% of Hess' earnings, with drilling success and timely new field startups on several continents. Recent oil and gas discoveries in deep-water Gulf of Mexico, Australia, Libya, and Egypt help to drive near-term production growth. Prospects in the emerging Bakken Shale oil field in North Dakota and projects in offshore Equatorial Guinea, Indonesia, Malaysia, and Thailand offer longer-term growth potential. Also worth watching, but still unproven is Hess' 40% participation in an ExxonMobil-led group exploring an offshore Brazil block located south of the major Tupi discovery. However, like its peers, Hess is prudently scaling back 2009 capital spending in response to the weakened global economy and lower oil and gas prices.

Top Energy Picks from Our Analysts
Although none of the top 10 energy purchases by our Ultimate Stock Pickers are currently considered buyable by our analysts, investors looking to gain exposure to the sector do still have a few options. Our analysts continue to see buying opportunities in ExxonMobil (XOM), Energy Transfer Partners (ETP), and Enterprise GP Holdings (EPE). All three of these firms are currently rated 5 stars and should benefit from strong long-term advantages as evidenced by the narrow (Energy Transfer) and wide (ExxonMobil and Enterprise) economic moats that our analysts believe currently exist around their businesses.

ExxonMobil (XOM)
Our analyst, Allen Good, feels that even though ExxonMobil has lagged its integrated peers during the recent market rally, it will outperform over the long run. The firm's financial strength allowed it to continue to increase its dividend, repurchase shares, and maintain its investment program even while oil prices were falling. ExxonMobil's returns on invested capital regularly exceed its peers', and Allen expects that to continue longer term. The firm's ability to choose from among some of the best megaprojects around the globe helps it drive higher returns, and its track record of delivering projects on time and under budget makes it a preferred partner for countries rich in oil and gas reserves. Exxon's ability to integrate its global network of oil and natural gas production, transportation, refining, and chemicals manufacturing, allowing it to drive costs down throughout the system, further underpin its high returns and can actually buffer the firm during periods of weaker commodity prices.

Energy Transfer Partners (ETP)
According to our analyst, Jason Stevens, Energy Transfer Partners has one of the best natural gas pipeline networks in the business. He feels that the stock's current price represents a compelling buying opportunity for investors. With the largest Texas intrastate system and interests in three interstate pipelines, Energy Transfer Partners can offer producers a full set of gas services and the ability to market their gas at the best realizable prices. The company's Tiger pipeline, expected to come on line in 2011, will add nearly 2 billion cubic feet a day of capacity to producers in the Haynesville Shale, with the majority of this capacity already committed to long-term contracts. Jason feels that Energy Transfer Partners is poised for growth despite the current weakness in natural gas markets, and he expects the company to be one of the primary beneficiaries of renewed infrastructure investment when natural gas begins to boom again. The only drawback to investing in Energy Transfer Partners is that it is a master limited partnership, which can increase personal tax-filing complexity for individual investors.

Enterprise GP Holdings (EPE)
Jason also believes that shares of Enterprise GP Holdings are undervalued at today's prices, feeling that the market is overlooking many of the long-term advantages of its business. Jason believes that Enterprise GP Holdings is one of the savviest ways to invest in midstream energy. As the general partner of both Enterprise Products Partners (EPD) and TEPPCO Partners (TPP), Enterprise GP Holdings stands to gain from the pending merger of the two entities, which Jason believes will allow for more rapid growth of post-merger distributions. Enterprise GP Holdings' 17% stake in Energy Transfer Equity (ETE), the general partner of Energy Transfer Partners, also gives the holding company a significant claim on cash-flow growth from one of the sector's most attractive natural gas pipeline MLPs (as noted above). Like Energy Transfer Partners, though, the only drawback to investing in Enterprise GP Holdings is that it is a master limited partnership, which can increase personal tax-filing complexity for individual investors.

Although many energy companies have rallied along with the market and the rise in oil prices, we feel that these three companies may have been overlooked by both our Ultimate Stock Pickers and the market overall. For more information about our analysts' opinions on these three names, as well as the 1,800 other companies we cover, please see our full list of Stock Analyst Reports on Morningstar.com.

Disclosure: Drew Woodbury does not own shares in any of the companies mentioned above.