Diamondback Energy Inc (FANG)

[Timothy Smith]

Diamondback's drilling economics at the Spanish Trail are among the strongest in the U.S. shale oil industry.

The company is making progress delineating its acreage in other areas, testing multiple horizons.

While the remaining inventory is unlikely to match the Spanish Trail in terms of returns, it should yield a multi-year, solidly economic development backlog once the commodity environment improves.

The stock's price appears to recognize the high quality of the company's assets, its strong balance sheet and enhanced economics due to mineral rights ownership via Viper.

While the current trading multiple is very high, the rich premium may be "sticky": investors may continue to price a cyclical recovery in oil into the stock, considering the company is well positioned to weather the downcycle and accelerate growth once the cycle turns.