In this report, we examine two U.S. energy stocks that are better positioned than many to weather the slowdown in the oil and gas industry. Devon Energy and Cimarex Energy—the first with 60% of its output in oil, the second with 64% in gas—have both increased their production over the past year. However, lower oil and gas prices have pushed down cash flow per share for the two firms. Both companies have extensive oil and gas reserves, all in the relative political safety of North America.

The near-term direction of oil and gas prices remains uncertain, so we think the best way to cut risk is to look for companies with rising production that are trading at reasonable multiples to cash flow. Here are two with sound long-term prospects.

DEVON ENERGY CORP. (New York symbol DVN; www.dvn.com) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 40% gas and 60% oil.

The company narrowed its focus with its July 2014 sale of some of its properties to Linn Energy for $2.3 billion. The deal included holdings in the Rockies, the onshore Gulf Coast and the Mid-Continent region (which includes Oklahoma, Kansas and Texas).

The sale let Devon focus on what it views as low-risk/high-reward properties, especially the oil producing assets it bought in Texas’s Eagle Ford shale formation for $6.0 billion in 2013.

Excluding the assets sold to Linn, Devon’s daily output averaged 674,000 barrels of oil equivalent in the three months ended June 30, 2015, up 8.7% from 620,000 a year earlier. Production rose on drilling success at Eagle Ford and new capacity at its Jackfish heavy-oil plant in Canada.

Cash flow per share fell 40.0%, to $3.00 from $5.00, on sharply lower realized oil and gas prices.

Devon’s $11.4 billion of long-term debt is a high, but manageable, 60.6% of its currently depressed market cap. It holds cash of $1.7 billion, or $4.14 a share.

The stock trades at just 3.7 times Devon’s annual cash flow of $12.00 a share, based on the latest quarter— although that cash flow will vary along with oil and gas prices.

Recommendation in Stock Pickers Digest: BUY

Energy stocks: Low level of long-term debt a plus for Cimarex

CIMAREX ENERGY (New York symbol XEC; www.cimarex.com) produces and explores for natural gas and oil. Gas makes up 64% of the company’s output; the remaining 36% is oil.

Cimarex’s properties are mostly in the Wolfcamp shale area of the Permian Basin in Texas and New Mexico, as well as the Cana-Woodford shale region in western Oklahoma.

In the three months ended June 30, 2015, the company’s production averaged 1.03 billion cubic feet of natural gas equivalent a day, up 22.4% from 838.7 million cubic feet a year earlier.

But even with the higher output, Cimarex’s cash flow per share declined by 47.5%, to $2.72 from $5.18, due to lower oil and gas prices. Its long-term debt of $1.5 billion is a low 13.8% of its market cap.

The stock trades at 10.6 times Cimarex’s annual cash flow of $10.88 share, based on the latest quarter.

But as with Devon, that estimate will change along with oil and gas prices.

Recommendation in Stock Pickers Digest: BUY

For a recent report on a junior energy stock with a different approach to countering the energy slowdown, read Butte Energy aims to ride out slowdown with hedging strategy.