Here Are This Energy Legend’s Top Stock Picks

Andrew Hall is one of the most revered traders in the energy market today. While he was ultra-long crude during the bull part of the commodity cycle from the mid 2000’s to 2008, Hall shorted the commodity when crude prices fell back to earth in the Great Recession and made $100 million in bonuses in 2008 for his efforts. Hall later used some of his bonus money to found Astenbeck Capital Management, which had an equity portfolio in excess of $115 million as of September 30. Given Hall’s extraordinary resume, let’s take a closer look at Astenbeck Capital Management’s top picks, which include Pioneer Natural Resources (NYSE:PXD), EOG Resources Inc (NYSE:EOG), Cimarex Energy Co (NYSE:XEC), Concho Resources Inc (NYSE:CXO), and ConocoPhillips (NYSE:COP).

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 ConocoPhillips (NYSE:COP)

Shares held (as of September 30): 218,936
Total Value (as of September 30): $10.5 million
Percentage of Portfolio (as of September 30): 9.07%

Astenbeck Capital Management slashed its position in ConocoPhillips (NYSE:COP) by 70% in the quarter, but still had a holding of 218,936 shares. Because of low crude prices and a lack of a meaningful downstream presence, ConocoPhillips shares have fallen by 22% year-to-date and now yield a 5.78% dividend, more than twice the ten-year Treasury’s payout. ConocoPhillips’ dividend is safe, as the company is cutting capex and costs. COP plans to reduce 2015 capex to $10.2 billion from the previous $11.5 billion and cut operating costs to $8.2 billion from $8.9 billion. Management also plans to divest non-core assets to shore up its cash flows.

#4 Concho Resources Inc (NYSE:CXO)

Shares held (as of September 30): 121,633
Total Value (as of September 30): $11.96 million
Percentage of Portfolio (as of September 30): 10.33%

Although Astenbeck reduced its position in Concho Resources Inc (NYSE:CXO) by 68% in the quarter, analysts are still bullish on the Permian Basin E&P. Two analysts have ‘Strong Buy’ ratings, sixteen more have ‘Buy’ ratings and only seven have ‘Hold’ ratings. None of the analysts have a ‘Sell’ rating. Many of the around 730 elite funds we track are bullish too, with 45 funds amassing 6.8% of its float at the end of September.

#3 Cimarex Energy Co (NYSE:XEC)

Shares held (as of September 30): 143,967
Total Value (as of September 30): $14.75 million
Percentage of Portfolio (as of September 30): 12.75%

Andy Hall’s fund cut its holding in Cimarex Energy Co (NYSE:XEC) by 60% from June 30 to September 30 but still had a stake of 143,967 shares, equal to 12.75% of Astenbeck’s equity portfolio. Despite not having much in the way of hedges, Cimarex Energy has actually done well this year, with its stock up by 7.96% year-to-date. Other investors, such as Ken Griffin‘s Citadel Investment Group like the stock because the company has quality assets in the Permian that will be worth a lot more if the company sells itself or if WTI/natural gas prices rally. Because of cost cutting and efficient production, analysts expect Cimarex to earn $0.94 per share next year.

#2 EOG Resources Inc (NYSE:EOG)

Shares held (as of September 30): 261,872
Total Value (as of September 30): $19.06 million
Percentage of Portfolio (as of September 30): 16.47%

Although many investors believe WTI and natural gas prices will stay ‘lower for longer’, energy bulls still believe demand growth will outstrip supply increases over the next few years as low crude prices cure low crude prices. Capital expenditures are falling across the industry and the U.S. oil production is slowly leveling off. In addition, a number of geopolitical events could occur that would force OPEC to curtail its production. If WTI prices rise, EOG will rise along with its peers. So far, EOG hasn’t done too badly with its shares down by only 11.9% year-to-date, as the smart money favors the company for its relatively clean balance sheet (the company isn’t very levered) and its quality assets. Ric Dillon‘s Diamond Hill Capital increased its position by 24% to 2.66 million shares, while Astenbeck pared its exposure by 63% in the quarter.

#1 Pioneer Natural Resources (NYSE:PXD)

Shares held (as of September 30): 250,118
Total Value (as of September 30): $30.42 million
Percentage of Portfolio (as of September 30): 26.29%

Like EOG Resources, Pioneer has quality assets that make it a tempting takeover target for reserve-starved super-majors. With a debt to equity ratio of 0.30, Pioneer is modestly leveraged, making it a safer play than other more indebted energy companies. Many smart money funds are long the company. According to our extensive database, 58 funds owned around $4.24 billion worth of PXD shares at the end of the third quarter, slightly higher than a quarter earlier. Besides Astenbeck, which reduced its exposure in Pioneer Natural Resources (NYSE:PXD) by around 1/3, Seth Klarman’s Baupost Group and Andreas Halvorsen’s Viking Global are also long the company too.

Disclosure: none