Paul Singer’s Elliott Management is bullish regarding Hess Corp. (NYSE:HES) and Anadarko Petroleum Corporation (NYSE:APC), as revealed by the fund’s large holdings in the two companies. On the other hand, the hedge fund has taken a bearish stance towards Chevron Corporation (NYSE:CVX), Noble Energy, Inc. (NYSE:NBL), Exxon Mobil Corporation (NYSE:XOM), and ConocoPhillips (NYSE:COP). We know this because the investment firm has taken on put positions in these stocks, using them to hedge the risk in energy stocks.
Elliott Management (Stock Picks, Investor Letters) is a New York City-based hedge fund that was founded by Paul Singer in 1977. The firm has been operating successfully for almost four decades and has been under Mr. Singer’s continuous management since it was launched. Elliott Management, along with Elliott International, are part of a larger entity called Elliott Management Corporation, which has around $15 billion in assets under management and caters to a wide range of institutional and wealthy investors. According to its latest 13F filing, Mr. Singer’s fund has an equity portfolio valued at $9.59 billion, with around 36% of its holdings represented by companies from the energy sector. In his 2014 Q4 investor letter, Singer made the following comments about the oil markets:
“The shortfall in demand which caused this crash is actually not all that great, and economic conditions around the world are not really that bad, and so some high-cost producers and their investors think that they can wait this out. However, since this is largely an engineered price move, we believe that over a period of coming weeks and months an increasing number of leveraged, high-cost producers will shut down production and/or file for bankruptcy. Bank lenders will get nervous and then harsh. Saudi Arabia’s strategy is incredibly effective in keeping this kind of competitor off balance.”
“…The price plunge is new, but if it is not reversed relatively quickly, it could make the apparently strong economic numbers in the U.S. in recent months seem like a lost warm memory by the middle of 2015. The problem, of course, is that the absence of pro-growth economic policies in the developed world (aside from monetary extremism) places a large premium on any industry that is actually growing and providing jobs and GDP. Given the fragility of both the global financial system and the economy, the plummet in the oil price is coming into a world in which any disruption can be harmful, even one resulting from a fall in prices of a major global input into the economic engine. The rise in the U.S. dollar in recent months also operates in the same direction, serving as another growth-dampening force to offset the consumer benefit of reduced-cost gasoline. Most people think the “tax cut” is more important overall than the growth-suppressive effects of the harm to the energy industry and the rise in the dollar, but we disagree.”
Hess Corp. (NYSE:HES) was not only one of Elliot Management’s top picks last quarter, it was THE top pick, occupying the largest position in its equity portfolio, with 18.8 million shares. Furthermore, Mr. Singer’s firm has held the stock as a top pick since 2013. Although in 2014 the company did not perform well, year-to-date the stock has gained 1.8% and the company was rated as a strong buy by several analysts. The high price target estimate is set at $105 per share, while the mean short term price target is at $84.50 per share. Hess Corp. (NYSE:HES) is currently trading at around $75 per share, meaning considerable growth is expected this year.
Elliot Management is also bullish regarding Anadarko Petroleum Corporation (NYSE:APC), holding a stake of 4.61 million shares at the end of the year. Last quarter, the New York-based hedge fund increased its exposure to the company by 885,400 shares. Furthermore, the stock has already gained 2% year-to-date, after struggling to reach a 4% growth rate in 2014. Paul Singer is not alone in his optimistic assessment of the company, as analysts indicate that Anadarko is on the right path to improve its bottom line performance by investing in high-margin oil assets. As Anadarko Petroleum Corporation (NYSE:APC) was able to maintain stable shares despite the troubled crude oil market, numerous institutional investors have become bullish regarding the stock. Ken Griffin’s Citadel Investment Group for example owns 4.92 million shares, after increasing its exposure to the equity by 35% last quarter.
Paul Singer appears to have been right to take a bearish stance towards Chevron Corporation (NYSE:CVX), as the stock has already dropped around 5% year-to-date. The drop in oil prices has hit the company hard and Elliot Management disclosed acquiring a new put position of 2.0 million shares during the last quarter. Although Chevron Corporation (NYSE:CVX) is backed by major funds such as Ken Fisher’s Fisher Asset Management, which owns 3.44 million shares, Mr. Singer’s firm does not seem to agree.
The same applies for Elliot Management’s put holding in Noble Energy, Inc. (NYSE:NBL), which amounts to 2.50 million shares. Although the company was championed by some a few quarters back, the stock has lost 29% over the past year and is one of the worst performing companies featured in this article. Although Paul Singer is betting against it, increasing his firm’s put position by 1.7 million shares last quarter, the company continues to be backed by numerous institutional shareholders. Amongst the funds we track, Boykin Curry’s Eagle Capital Management is the most bullish regarding the stock, with a stake of 14.50 million shares in Noble Energy, Inc. (NYSE:NBL).
Paul Singer’s Elliot Management also increased its put position in Exxon Mobil Corporation (NYSE:XOM) and ConocoPhillips (NYSE:COP) last quarter. As the hedge fund seeks to hedge the risk in energy stocks, it acquired a put holding of 250,000 shares in ConocoPhillips (NYSE:COP), and a put position of 170,000 shares in Exxon Mobil Corporation (NYSE:XOM). Hedge fund manager Donald Yacktman however, does not seem to agree with Mr. Singer’s bearish assessment of both companies: his fund Yacktman Asset Management holds a stake of 7.01 million shares in Exxon and 6.01 million shares of ConocoPhillips
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