Tax day has come and gone. And while millions of Americans have had to deal with writing an unexpected check to Uncle Sam this year, plenty of people are looking forward to getting money back.
The majority of tax refund-receivers will use their refund for a vacation or to pay off debts, while a few will stick it in savings for a rainy day -- three reasonable choices. But if you're reading this, you're probably part of a rare -- dare we say elite -- group of individuals looking to put that tax return to work. Welcome to the league of extraordinary tax refund investors.
Image source: Getty Images.
Here are three oil stocks our experts have identified as timely investments with your post-tax-day proceeds: Chevron (CVX 0.57%), Halliburton (HAL -0.34%), and Clean Energy Fuels (CLNE 4.53%). Keep reading to learn why our investor-experts say these three are worth buying now.
This bold bet could pay off big-time
Matt DiLallo (Chevron): I initially picked Anadarko Petroleum as my top oil stock for April, doubling down on my view that it was one of the best to buy for 2019. I liked the oil and gas producer's ability to thrive at lower oil prices, which has it cashing in now that crude's in the mid-$60s. Add in the fact that it had significantly underperformed oil prices and its peers this year, and its stock seemed to have lots of upside.
Oil giant Chevron seemed to agree, because it acquired Anadarko at a stunning 38.9% premium. That deal announcement sent me back to the drawing board. In the end, I decided to go with Chevron, because this transaction should create significant shareholder value.
The acquisition of Anadarko fits like a glove. It will enhance the company's position in the fast-growing Permian Basin, bolster its operations in the Gulf of Mexico, and add substantial offshore resources in Africa. The transaction will also enable Chevron to leverage its expertise in liquefied natural gas to develop Anadarko's big gas discovery in Mozambique.
In addition to the strong strategic fit, the deal has significant financial benefits. While the oil giant is paying a hefty price of $50 billion for Anadarko, it's not overpaying by any means. For starters, analysts thought Anadarko was worth as much as $65 billion on a standalone basis. Meanwhile, Chevron believes the combined company can save about $2 billion in annual costs. That will free Chevron up to return more cash to shareholders, which it aims to do by boosting its share repurchase program by 25% to $5 billion per year.
Despite the significant strategic and financial benefits, Chevron's stock slumped 5% on the acquisition news. That gives investors an even more attractive entry price for this top-tier big oil company. While Chevron doesn't have the upside potential I initially saw in Anadarko, it's in an even better position to generate market-beating returns in the coming years. That's why it's my top choice this month.
The company behind oil drilling
Travis Hoium (Halliburton): The boom in oil production in the U.S. is made possible by companies like Halliburton, which owns the infrastructure assets for oil drilling. It provides services from locating oil and natural gas to well construction and completion services. In that respect, it's not a direct play on oil prices, but its business does rise and fall with the demand drillers have for its services.
Halliburton's revenue has grown steadily over the past two years, as has net income, as oil drilling has expanded. That said, revenue did flatten out at the end of 2018. This short-term drop in revenue was due to weakness in North America, where management said operators are focused on generating revenue from oilfields rather than on growing production.
HAL Revenue (TTM) data by YCharts
To grow long-term, Halliburton will need to see continued growth of oil and natural gas production, which I think we can expect for the foreseeable future. The demise of fossil fuels is not imminent.
From a valuation perspective, a recent drop in Halliburton's shares has left them trading for 17.1 times trailing earnings, a reasonable value for a company with an important role in the energy industry. The combination of value and stable operations in the growing energy industry is why this is my favorite oil stock right now.
This "alternative to oil" stock is set for big, profitable growth
Jason Hall (Clean Energy Fuels): The past couple of years have been very turbulent for Clean Energy Fuels' shareholders. If you've bought shares over that period, your returns could be anything from excellent to "meh" to absolutely bad:
It's not particularly surprising that the company's share price has been so volatile. The company's growth, best measured in fuel volume sold, had slowed in recent years under the weight of lower oil -- hence diesel -- prices that were slowing the adoption of natural gas as a fuel for medium- and heavy-duty vehicles. Fears that natural gas was being supplanted by battery-electric and hydrogen technology as the clean fuel of choice has also compounded investor fears in recent years.
So with all this bad news, why buy Clean Energy Fuels? In short, because it's returned to growth and has a number of significant catalysts to help continue driving profitable growth.
Fuel volume sales increased 14% in the fourth quarter, easily its best quarter in several years. Moreover, it generated $9 million in operating cash flow and should remain cash-flow positive, on the strength of fuel volume growth and its successful plan to slash debt and lower operating expenses over the past three years:
CLNE Total Operating Expenses (TTM) data by YCharts
And despite the hype around electric- and hydrogen-powered medium- and heavy-duty vehicles, neither technology has proved road-ready across nearly the range of applications of natural gas, which gives operators the flexibility and capability of a diesel engine, with a smaller carbon footprint and particulate emissions, and offers it all today.
Add it all up, and Clean Energy is well positioned, cash-flow positive, and primed for big growth.
