3 Stocks That Look Just Like ExxonMobil in 1996

In the late 1990s, ExxonMobil (NYSE: XOM) made smart capital-allocation moves to buy back stock and acquire its peers, thus positioning itself to benefit from rising energy prices and growing production over the decades that followed. Below, three Fools make a case for First Solar (NASDAQ: FSLR), C&J Energy Services (NYSE: CJ), and EOG Resources (NYSE: EOG) as stocks that could offer a similar setup for impressive long-run returns.

Investing in a major player in next phase of global growth

Jason Hall (First Solar): Over the past couple of decades, two factors have made ExxonMobil a nearly six-bagger in total returns for investors: steady acquisition and consolidation of competitors to deliver per-share earnings growth, and an incredible track record of dividend growth. These two things have been built on the back of rapid global industrialization, which has required a cheap source of energy. Crude oil and natural gas have been that energy source for decades.

Oil and gas are likely to remain important energy sources, but renewables are gaining increasing market share and, I think, will be far more important than oil in the developing world in 20 years. And few companies are positioned to be major beneficiaries of that dynamic shift than First Solar.

To start, First Solar is a technology leader, with its thin film panels setting the standard in reliability for utility-scale solar projects, particularly in extreme-weather environments, where solar installations are common. The company also has an incredibly strong balance sheet that has allowed it to continue investing in product development during the current cyclical slowdown in solar sales.

Yet the market continues to price First Solar at a relative discount. Shares trade slightly below book value and at less than two times sales, despite the fact that the company holds cash ($1.5 billion) worth nearly 30% of its market capitalization ($4.95 billion). So First Solar could prove to be an incredible investment over the next 20 years.

A bet on higher oil prices

Jordan Wathen (C&J Energy Services): Energy is a fickle business as its fortunes are driven by the ebbs and flows of commodity prices, which are simply a function of basic supply and demand. Like most companies in the industry, C&J Energy Services has been hard-hit by declining demand for energy services as drilling activity has waned due to falling energy prices.

The company filed for bankruptcy protection in 2016, and this year it emerged with a healthier balance sheet that should help it see its way through the current downturn. The company had approximately $426 million of liquidity at the end of its second quarter, and has no long-term debt against approximately $1.3 billion of assets.

C&J Energy Services provides well construction, completion, and support to oil and gas exploration companies, generating roughly half of its revenue from fracturing services. In its most recent filing, the company noted that it expects to exit the third quarter with 13 horizontal fleets and four vertical fleets deployed, with the possibility of putting another fleet to work by the end of October.

Energy services companies like C&J are effectively a levered bet on the price of oil. Should prices rise and drilling activity pick up, energy services companies will see an immediate benefit as their fleets are put back to work and at higher hourly and daily rates. Energy services companies aren't for the faint of heart, but oil speculators should enjoy their outsize exposure to rising energy prices relative to exploration and production companies.

An Exxon-like focus on returns

Matt DiLallo (EOG Resources): One of the hallmarks of ExxonMobil over the years has been its focus on investing for returns, as opposed to growing for the sake of growth. As a result, Exxon consistently leads its big-oil peer group in average return on capital employed, delivering a 20% return over the past decade while most rivals notched around 10%. That has enabled Exxon to generate a gusher of cash flow, which allowed it to return an astounding $370 billion in cash to investors since merging with Mobil in 1998 while fueling market-smashing total returns of nearly 600% since 1996.

EOG Resources looks like Exxon in that regard. The shale driller's vision is to be the U.S. leader in return on capital employed. One way it intends to achieve that goal is by focusing its investments on drilling wells that can earn a premium return, which it defines as 30% after tax at $40 oil. By focusing its capital on wells that can meet that high hurdle rate, EOG Resources believes it can grow output at a healthy clip even with lower oil prices.

In fact, the company currently estimates that its growing inventory of premium drilling locations will allow it to achieve 15% compound annual growth in its U.S. oil output through 2020 at $50 oil while living within cash flow. That's well ahead of the growth rates of similarly sized rivals; most need oil in the mid-$50s to achieve a comparable growth rate. Thus, EOG Resources appears poised to outperform its peers in the coming years, which could fuel Exxon-like returns over the long term.

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Jason Hall owns shares of First Solar. Jordan Wathen has no position in any of the stocks mentioned. Matthew DiLallo owns shares of First Solar. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.