The present is so bleak that the future can’t help but be bright.

That’s the simple but powerful belief now driving the market action in energy commodities and related equities.

At its root is the tried-and-true saw about low prices being the best cure for low prices. As two years of spending cuts exert a mounting toll on energy supply, investors are widely discounting the current misery among producers to focus on their upside once prices recover.

Nothing illustrates this attitude better than a recent trio of earning reports by the companies we recommend, and the market’s reaction.

Of particular interest in that regard are the comments made by Schlumberger (NYSE: SLB) CEO Paal Kibsgaard at the very outset of the quarterly conference call on April 22. As by far the largest, best and most diversified global oil services provider, Schlumberger has an unrivaled perspective on industry trends.

“Activity fell sharply in the first quarter as the industry displayed clear signs of facing a full-scale cash crisis. We experienced activity reductions worldwide, with the rate of disruption reaching unprecedented levels.

“The start of a new year and a new budget cycle represented a further fall in customer E&P spend, and we expect continued weakening in the second quarter given the magnitude and erratic nature of the ongoing activity disruptions. This outlook is backed by the latest 2016 E&P spending surveys, which indicate sharper falls than earlier figures. Global spending reductions in 2016 are now approaching 25%, corresponding to a fall of 40% to 50% in North America and around 20% in the international markets.

“Our first quarter revenue fell 16% sequentially, a figure that represents the second steepest quarterly decline we have seen in this downturn that has now persisted for six straight quarters. Rig activity fell in all parts of the world, as customers further reduced budgets and continued to exert pressure on product and service pricing, while operations also suffered from project delays and job cancellations.”

The company warned that revenue could drop another 16% sequentially during the second quarter, and reported cutting 8,000 jobs during the first three months of the year, shrinking its workforce by more than 30% in less than two years.

The stock slipped all of 0.4% that day. It remains up 15% year-to-date, albeit still 32% below its 2014 high. Startlingly, the share price is unchanged since August 2013, when Brent crude averaged $111 per barrel, vs. $47/bbl now. That was the quarter in which Schlumberger posted operating earnings and revenue nearly twice as high as those it reported last month.

What would account for this resilience, not to say complacency? You’d have to start with the relative outperformance of  Schlumberger’s international business, where margins have largely held up and the revenue drop hasn’t been as drastic as in North America. Then factor in Schlumberger’s continuing dominance over its nearest rivals (who’ve just gone through the huge distraction of trying to merge only to see the deal blocked by antitrust considerations.) A dividend that still yields 2.5% certainly hasn’t hurt, and neither have the steady share repurchases, hefty cash hoard and relatively low debt leverage.

But all of these positives were unceremoniously ignored while the stock was slumping last year. What’s new is the growing certainty that the painful cumulative cuts by oil producers will largely eliminate the supply glut by the end of this year. “The magnitude of the E&P investment cuts [is] now so severe that it can only accelerate production decline and the consequent upward movement in oil price,” was how Kibsgaard put it. 

Chevron (NYSE: CVX) also suffered through a dismal first quarter, reporting a $725 million net loss versus a $2.6 billion net gain a year ago. The integrated oil giant generated $1.1 billion in cash from operations but still racked up $3.8 billion in additional debt to spend $2 billion on dividends and $5.6 billion on capital projects.

Chevron considers the dividend currently yielding 4.2% its top priority and hopes to be able to cover it as well as its capital spending needs from operating cash flow and asset sales next year, as costly long-term projects come on line.

The stock shrugged off the weak results on April 29, and is up 14% this year. It’s now unchanged since early December 2014, when Brent still fetched $65/bbl. The same holds true for ExxonMobil (NYSE: XOM), so this is obviously not about Chevron’s declining capital spending in particular but rather the entire industry’s rapid retrenchment.

The change in investor sentiment and in the price trend of energy stocks is obviously good news. But it presents an equally obvious risk that expectations of recovery have already been priced in. Given the tremendous financial resources and attractive assets of Conservative Portfolio mainstay Chevron and Growth pick Schlumberger, we’re comfortable rating them as Holds despite the stretched valuations, especially with the sector in rally mode.

But we see very few bargains among crude producers given the likelihood of rising production costs once prices improve and considering the cash flow deficits still rampant in the sector.

We see a lot more potential in natural gas producers already living within their means despite a 40% drop in realized prices, all while increasing their output modestly this year and retaining the capacity for a rapid escalation in a recovery. That’s exactly what Cabot Oil and Gas (NYSE: COG) reported on April 29.  The Growth pick remains our #2 Best Buy, and we’re raising the Buy limit to $30.

Unlike the crude producers, gas drillers like Cabot and #3 Best Buy EQT (NYSE: EQT) are the lowest-cost global producers with no direct foreign competition. Demand for domestically produced natural gas should rise on the back of increased power plant purchases, new petrochemical plants and liquefied natural gas export terminals as well as pipeline shipments to Mexico.

At a current market capitalization of $11 billion Cabot is certainly not cheap, even if we were to use the 2014 high water mark of $1.2 billion in operating cash flow as our measure. But it’s got relatively little debt, the most lucrative dry gas deposits in the Marcellus, and a track record of continually driving down costs.

The share price is up 32% in 2016 but still down 31% over the last year. Meanwhile, gas drilling has slowed even more drastically than investments in crude. This portends much higher prices, for natural gas as well as Cabot shares.