5 Energy Stocks Lucas Capital Likes for Q2

Russell Lucas‘ Red Bank, New Jersey-based Lucas Capital Management is focused on investments in the energy sector. Deducing from the fund’s latest filing, the sector represented about 43% of the value of its equity portfolio, though this was down slightly from 47% at the end of December. Although the energy sector is up by some 12.8% so far this year, it has been an extremely rocky and highly volatile ride. Let’s take a look at how Russell Lucas has geared his fund’s portfolio to ride the recovery in energy prices in the current quarter and beyond.

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#5 Pioneer Natural Resources (NYSE:PXD)

 – Shares Owned by Lucas Capital (as of March 31): 16,700

 – Value of Holding (as of March 31): $2.36 Million

The $27.21 billion oil and gas exploration and production company might seem to have lost some of Mr. Lucas’ confidence, as he slashed his fund’s stake in the company by 24% during the first trimester. However, considering that Pioneer Natural Resources (NYSE:PXD)’s stock price is up by a whooping 32% so far this year, the move might very well have been one of profit-taking. Despite first quarter revenue coming in lighter-than-expectations, a number of analysts including Stigel, Topica Capital Markets, Wunderlich, and RBC Capital Markets appeared to be upbeat about the company’s bottom-line beat and raised their price targets on the stock. With 9.37 million shares valued at $1.17 billion, Andreas Halvorsen‘s Viking Global was the largest stockholder of Pioneer Natural Resources (NYSE:PXD) within our database at the end of last year.

#4 Exxon Mobil Corporation (NYSE:XOM)

 – Shares Owned by Lucas Capital (as of March 31): 35,000

 – Value of Holding (as of March 31): $2.92 Million

Lucas Capital’s Exxon Mobil Corporation (NYSE:XOM) holding remained largely unchanged during the January-to-March period and represented 2.13% of the value of the fund’s portfolio. Although trading nearly sideways over the last 12 months, the $371 billion energy company’s stock has appreciated by 14.2% year-to-date alongside the broader rebound in the industry. A loss in the upstream segment and a decline in earnings from the downstream segment on a year-over-year basis wasn’t enough to hold the company back from beating both the top and bottom-line estimates for its first quarter financial results, thanks to a rise in Exxon Mobil Corporation (NYSE:XOM)’s earnings from the chemical segment. Ken Fisher‘s Fisher Asset Management reduced its Exxon holding by 16% to 4.54 million shares during the first quarter.

We power through the top three energy stock picks of Lucas Capital on the next page.

#3 Western Gas Equity Partners LP (NYSE:WGP)

 – Shares Owned by Lucas Capital (as of March 31): 82,400

 – Value of Holding (as of March 31): $2.94 Million

Lucas Capital cut its stake in the high-yield MLP by 9% during the March quarter. Western Gas Equity Partners LP (NYSE:WGP) closed its $750 million acquisition of Springfield Pipeline LLC from Anadarko Petroleum Corporation (NYSE:APC) in mid-March. Western Gas Equity Partners’ stock has rallied by a little over 10% so far this year. Stuart J. Zimmer‘s Zimmer Partners was bullish on Western Gas Equity Partners LP (NYSE:WGP) in the fourth trimester as it raised its stake by 61% to about 420,500 shares.

#2 EOG Resources Inc (NYSE:EOG)

 – Shares Owned by Lucas Capital (as of March 31): 42,400

 – Value of Holding (as of March 31): $3.07 Million

The $46 billion oil & gas exploration and production company has seen its stock rise by almost 17% on a year-to-date basis. Lucas Capital appears to have taken some money off the table in this case as well, slashing its holding by 27% during the March quarter. Nonetheless, the holding is still the fund’s second-largest among energy stocks and it has held a stake in EOG Resources Inc (NYSE:EOG) since the first quarter of 2012. Shares are up by about 48% since then. Deutsche Bank recently downgraded the company to ‘Hold’ from ‘Buy’ and revised its price target to $83 from $85 on valuation concerns. EOG’s significant outperformance in the sector accompanied by aggressive multiple expansion (6.2x premium on 2016 EV/DACF) as compared to its peers limits the upside potential of the stock going forward. Selz Capital, which is led by Bernard Selz, held 40,000 shares of EOG Resources Inc (NYSE:EOG) valued at $2.9 million at the end of March.

#1 Magellan Midstream Partners, L.P. (NYSE:MMP)

 – Shares Owned by Lucas Capital (as of March 31): 45,391

 – Value of Holding (as of March 31): $3.12 Million

Lucas Capital’s largest equity investment in the energy sector represented 2.28% of its portfolio at the end of the first trimester, after the fund trimmed its holding by 3% during the quarter. Magellan Midstream Partners, L.P. (NYSE:MMP) recently increased its dividend by 12% to lift its yield to 4.47%. Along with TransMontaigne Partners L.P. (NYSE:TLP), the energy pipeline and storage company has been assessing the development of a new refined products pipeline in South Texas, which could have an approximate length of 150 miles with a 16-inch diameter. Osterweis Capital Management, which is led by John Osterweis, was the largest stockholder of Magellan Midstream Partners, L.P. (NYSE:MMP) among the funds that we track as of December 31, holding more than 571,400 shares.

Disclosure: None