One of the hardest decisions an investor is faced with is when to sell. There is always the worry of selling too early or not selling soon enough, which can leave you with analysis paralysis. That's why a buyout can sometimes be an investor's best friend because it can take the guess work out of when to sell. While there are plenty of potential buyout candidates out there, the following two companies are being built to sell by management teams that have done it before. That makes these two the best stocks to buy if you're hoping to someday cash out.
Clean up with this stock
Topping my list of best stocks to buy for a future buyout is Nuverra Environmental Solutions (NYSE:NES). Founder Richard Heckmann and CEO Mark Johnsrud have both built and sold companies in their past, which is one reason I think Nuverra's future likely ends with it being sold. That being said, a sale is likely years away as the management team is just beginning to build something great.
What the team is building is a full-cycle environmental solution for oil and gas exploration companies. The company can deliver, collect, treat, recycle, and dispose of the water used in fracking. In addition to this, it is expanding its offerings into solid waste disposal while it had multiple opportunities to develop complimentary environmental solutions in the future.
To date, Nuverra has built a substantial asset base to serve most of the major shale plays as you can see from the following chart:
The company has a long way to go before its management team, which owns a substantial stake in it, would consider putting it up for sale. Its stated goal is to deliver more than $1 billion in annual revenue and this year it expects to deliver between $750 million to $825 million in revenue. I'd expect it to continue to build and buy new lines of business in order to bring its revenue well in excess of $1 billion annually before the management team looks to exit. Even without a sale this is one of the best stocks to play the growth in shale oil and gas production.
Soar higher with this oil stock
Oil and gas driller Halcon Resources (NYSE:HK) is another that's being built by a team with experience in selling a company. In Halcon's case, CEO Floyd Wilson built Petrohawk Energy and sold it to BHP Billiton (NYSE:BHP) for $15 billion. BHP, which was looking for a way to put its massive war chest to use and was able to snap up great assets and technical know-how to develop shale gas resources.
Now Wilson is at it again, this time focusing on liquids-rich development plays in the U.S. A sale in the future is very likely here as in the process of forming Halcon, which means hawk in Spanish, Wilson was quoted as saying that, "One day we'll sell to some big, smart company." He views the company as the sequel to Petrohawk, or simply a continuation of his build-to-sell strategy.
Like Nuverra, investors shouldn't expect a deal anytime soon. Halcon is still very early in the build cycle having amassed acreage across several different liquids-rich areas including the Bakken and the Utica as you can see from the map below:
Halcon has been very active in acquiring acreage over the past year and will be investing heavily to develop that acreage this year. The current plan is to spend $1.2 billion this year, with 38% of that capital being spent in the Bakken, 32% on the Woodbine, and the rest of the capital split among the Utica, El Halcon, and its other acreage.
The company is taking a very balanced approach as it has acquired acreage to develop across several plays instead of sticking to just one key play. That approach helps mitigate some risk both in terms of developing these emerging liquids plays as well as in dealing with play-specific issues. For example, while it's spending the most capital on the Bakken, it's not putting all of its capital into the play like Kodiak Oil & Gas (NYSE:KOG). Kodiak has been hurt by high well costs and has had to flare substantial natural gas due to lack of infrastructure. That's crimped the company's profits, which is why it hasn't been the best-performing stock over the past year, though it still was able to grow production by triple digits. That being said, by operating in several basins, Halcon can move capital around to its highest return plays if it runs into problems in one of its operating areas.
Foolish bottom line
Of the two, I like Nuverra's stock best as it's providing important solutions to mitigate key environmental issues surrounding fracking. Halcon is just one of many companies that offer oil and NGL production growth and while it should do well over the long term, that same potential can be said of its competitors as well. That will make it tougher to stand out as a buyout candidate.
Fool contributor Matt DiLallo owns shares of BHP Billiton Limited (ADR) and Nuverra Environmental Solutions . The Motley Fool owns shares of Nuverra Environmental Solutions and has the following options: long Jan. 2014 $4 calls and short Jan. 2014 $3 puts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.