Are Hedge Funds Right on Anadarko?

Anadarko Petroleum Corporation (NYSE:APC) was one of the most popular energy stocks among hedge funds during the third quarter of 2012 (see the full rankings). 58 files in our database of funds and other notable investors reported a position in the independent oil and gas company, up from 55 at the end of June. Anadarko Petroleum Corporation produces oil, natural gas, and natural gas liquids and also has midstream and marketing operations. The company’s revenue was up 4% in the third quarter compared to the same period a year ago, led by higher oil volumes. Natural gas and natural gas liquids volumes also increased, but because of lower prices for these commodities sales in these two businesses were down. Ignoring Deepwater Horizon costs and an impairment from the third quarter of 2011, operating income was up about 30%.

The stock trades at 18 times forward earnings estimates as earnings per share are expected to be higher in 2013. Considering that Anadarko Petroleum Corporation recorded 24 cents in EPS in the third quarter and the current stock price is above $73, the market and analysts alike seem to be expecting higher natural gas and NGL prices; combined with continued increases production, this could drive earnings up enough to justify the stock price. However, it’s possible that producers who are focused on natural gas, such as Chesapeake Energy Corporation (NYSE:CHK) would have a similar upside at a cheaper valuation. We’d also note that the stock has a beta of 2.2, likely because much of its valuation depends on energy prices which in turn are driven by demand. Billionaire Steve Cohen’s SAC Capital Advisors increased its stake by 27% during the quarter and closed September with a position of 3 million shares (find more of Cohen’s stock picks) while billionaire and former oilman T. Boone Pickens also added shares during the quarter (check out more energy stocks Pickens is buying).