Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Nuverra Environmental Solutions Inc (NES), Halcon Resources Corp (HK): The Two Best Stocks to Buy Anticipating a Future Buyout

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.

Halcon Resources Corp

Clean up with this stock
Topping my list of best stocks to buy for a future buyout is Nuverra Environmental Solutions Inc (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 Environmental Solutions Inc (NYSE:NES)’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 Environmental Solutions Inc (NYSE:NES) has built a substantial asset base to serve most of the major shale plays as you can see from the following chart:

Source: Nuverra Investor Presentation.

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 Corp (NYSE:HK) is another that’s being built by a team with experience in selling a company. In Halcon Resources Corp (NYSE:HK)’s case, CEO Floyd Wilson built Petrohawk Energy and sold it to BHP Billiton Limited (ADR) (NYSE:BHP) for $15 billion. BHP Billiton Limited (ADR) (NYSE: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 Resources Corp (NYSE:HK), 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 Environmental Solutions Inc (NYSE:NES), investors shouldn’t expect a deal anytime soon. Halcon Resources Corp (NYSE:HK) 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:

Source: Halcon Resources investor presentation.

Halcon Resources Corp (NYSE:HK) 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 Corp (USA) (NYSE:KOG). Kodiak Oil & Gas Corp (USA) (NYSE:KOG) 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 Resources Corp (NYSE:HK) 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 Environmental Solutions Inc (NYSE:NES)’s stock best as it’s providing important solutions to mitigate key environmental issues surrounding fracking. Halcon Resources Corp (NYSE:HK) 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.

The article The 2 Best Stocks to Buy Anticipating a Future Buyout originally appeared on and is written by Matt DiLallo.

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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.