Israel Englander’s $13 billion Millennium Management recently disclosed its holdings in a 13F filing. Englander seems to like energy stocks a lot. One-fourth of his portfolio is invested in the basic materials sector. Among the top 15 positions in his latest 13F portfolio, five are energy stocks. Englander also focuses on technology, healthcare, services, and financial sectors. In this article, we are going to discuss his energy picks in detail.
The third-largest position in Millennium’s 13F portfolio is Pioneer Natural Resources Company (PXD). During the fourth quarter, Englander increased his PXD stakes by nearly 60%. At the end of last year, Millennium reported owning $74 million worth of PXD shares. PXD is quite popular among hedge funds. At the end of the third quarter, there were 22 hedge funds with PXD positions in their 13F portfolios. Andreas Halvorsen’s Viking Global had over $50 million invested in PXD. Jean-Marie Eveillard and Steven Cohen were also bullish about PXD.
PXD reported total revenue of $703 million, up over 50% from the same quarter in 2010. Its net operating cash flow also increased by 30% to about $500 million, versus the average industry growth rate of -18%. PXD has a forward P/E ratio of 14.87. PXD is expected to grow at an average of 10% per year over the next couple of years. So its P/E ratio for 2014 is 12.3, versus 6.8 for its main competitor Chesapeake Energy Corporation (CHK). The natural gas prices have been declining. As a result, most natural gas stocks are performing badly recently. For example, CHK lost 28% over the past 52 weeks, during which the market was up 5.83%.However, PXD was up over 10% during the past year, beating the market by more than 4 percentage points. We do not think this is a good time to purchase natural gas stocks, especially those that are trading at a premium, like PXD. We are contrarian and have a position in CHK because of its cheap valuation but this industry is quite risky at this moment.
Another large-cap energy stock that Englander is bullish about is Occidental Petroleum Corporation (OXY). At the end of last year, Millennium had over $40 million invested in this position. OXY is also very popular among hedge funds. At the end of September, there were 43 hedge funds with OXY positions in their 13F portfolios. Ken Fisher’s Fisher Asset Management had over $450 million invested in OXY at the end of last year. Ric Dillon and Jim Simons were also bullish about this stock.
We believe OXY is a decent investment. The company is investing in some of promising domestic projects with high returns. Over the past two years, OXY has shown a trend of positive EPS growth. For the fourth quarter of 2011, the company improved its EPS by 35% from the same quarter of 2010. We are also optimistic about its future growth. Analysts estimated its EPS to grow at an average of 11% per year in the next couple of years. OXY has a forward P/E ratio of 11.03, so its P/E ratio for 2014 is about 8.9. ConocoPhillips (COP) is similar to OXY. Both companies have oil & gas, chemical, and midstream segments. COP has a forward P/E ratio of 8.73. We like both OXY and COP. But COP looks even more attractive when it comes to valuation. Moreover, it has a decent dividend yield of 3.5%. That’s one of the reasons why we have COP in our portfolio.
Other large energy positions in Englander’s portfolio are Devon Energy Corp (DVN), Energen Corp (EGN), and Sunoco Inc (SUN). Englander had over $50 million invested in both DVN and EGN, and another $40 million invested in SUN. DVN and EGN are trading at low multiples as well. DVN’s P/E ratio is 10.21 and EGN’s is 12.23. SUN looks a bit overvalued compared with its peers. Its forward P/E ratio is 24.14. All three companies are expected to grow at around 10% annually over the next couple of years. We especially like DVN. It not only has low valuation levels, but also has robust revenue and earnings growth and reasonable debt levels.
