We track BP Capital’s filings in our database alongside those of hundreds of other funds as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year) and so we can also check to see what Pickens and his team have been doing over time. Read on for our thoughts on their five largest holdings as of the end of March or compare these picks to previous filings.
Pioneer
BP Capital reported owning a little over 100,000 shares of Pioneer Natural Resources (NYSE:PXD), an oil and gas exploration and production company. A minority of Pioneer Natural Resources (NYSE:PXD)’s production by energy equivalent is oil, with the rest being natural gas and natural gas liquids (where market conditions have not been as good recently). As a result, earnings fell over 50% last quarter compared to the first quarter of 2012. This does give Pioneer Natural Resources (NYSE:PXD) some potential upside if natural gas prices recover, and it’s certainly possible that demand will rise, but analysts don’t seem optimistic on the company with the forward P/E being over 20.
Apache
Pickens initiated a position of about 120,000 shares in Apache Corporation (NYSE:APA), a global E&P company. The production mix here is also a little less than 50% oil in terms of energy equivalent, though oil does account for nearly 80% of production revenue due to the more favorable market conditions we’ve mentioned earlier. Both revenue and net income fell 10% in Apache’s most recent quarter compared to the same period in the previous year, though here the sell-side is forecasting a strong recovery: the stock trades at 9 times forward earnings estimates, in line with the valuation of many oil majors.
Best of the rest
Goodrich Petroleum Corporation (NYSE:GDP) was another of the fund’s top picks. The stock’s market capitalization is only about $500 million, but on average, over 1 million shares are traded per day, making for plenty of dollar volume. Another E&P company, Goodrich focuses on U.S. shale plays including the Eagle Ford and Haynesville in the Texas-Louisiana region. It has actually been unprofitable for the last several quarters, driving the stock price down 15% in the last year as the market has risen strongly, and the most recent data shows that 27% of the float is held short.
Pickens and his team kept their stake in Devon Energy Corp (NYSE:DVN) about constant between January and March. Devon is primarily a natural gas producer- only about a sixth of its energy production is oil- and as such natural gas and natural gas liquids together actually account for most of the company’s revenue. Analyst consensus shows little change in adjusted earnings per share this year against 2012 numbers, but then a sizable increase in 2014 which results in a forward earnings multiple of 12. That is a somewhat attractive figure, but it does seem to depend on improvement in demand for natural gas and NGLs.
The 13F reported that the fund owned almost 80,000 shares of oil major Occidental Petroleum Corporation (NYSE:OXY) at the beginning of April, up from about 60,000 shares at the beginning of this year. Compared to some of its peers, Occidental looks quite expensive with trailing and forward P/Es of 17 and 13 respectively, and business has been down as well. We’d note that at current prices and dividend levels Occidental’s dividend yield is nearly 3%. Still, we’d suggest comparing the company to peers such as Exxon Mobil or BP for large energy companies that offer better value, income, or both.
Final thoughts
There’s no denying that T. Boone Pickens is one of the most successful oil investors of our time. For market participants looking to establish an energy-focused portfolio of their own, BP Capital is a nice play to start. Though Occidental’s valuation isn’t particularly attractive, it’s likely that Pickens is focused on its ability to not get bogged down by refining, instead serving more as a pure-oil play. Devon, Pioneer and Goodrich are “comeback” NG/NGL bets, while Apache’s prospects are strong in the value arena.
Disclosure: I own no shares of any stocks mentioned in this article.
