We track 13F filings from hedge funds and other notable investors for a couple of different purposes. One way that we use these filings is by using our database to formulate investment strategies; in our August newsletter, for example, we listed the most popular small cap stocks among hedge funds and this set of names went on to beat the market by 18% between September and January (read more about our hedge fund strategies). Some funds have already filed their 13Fs, including Michael Messner’s Seminole Capital Management. This allows us to use these filings in another way: as free “stock picks” that investors can evaluate and then buy themselves if they agree that the fund has found a good value. Read on for our quick take on five of Seminole’s largest holdings in the energy sector and compare its picks to previous filings.
The fund’s top energy pick was Total S.A. (NYSE:TOT) as Seminole slightly increased its stake to just over 2 million shares. Total is a $120 billion market cap oil major which stands out for its low earnings multiples (even among large energy companies, which are generally cheap at this time); for example, it is valued at only 7 times analyst consensus for 2013. The dividend yield is also high, at close to 5%, and while earnings were down the decline was moderate compared to some other majors. Arrowstreet Capital initiated a position of 2.3 million shares in Total during the third quarter of 2012 (find Arrowstreet’s favorite stocks).
Another oil major, Royal Dutch Shell plc (NYSE:RDS.A), was also one of Messner’s favorite energy stocks as Seminole reported a position of about 880,000 shares, roughly a 10% increase from three months earlier. Cliff Asness’s AQR Capital Management had cut its stake in Q3 but still closed September with about 550,000 shares in its portfolio (see more stocks AQR owned). Royal Dutch Shell trades at 8 times trailing earnings, also offers a high dividend yield, and reported very low (but still positive) growth on both top and bottom lines for last quarter versus a year earlier.
Read on for three more energy stock picks from Seminole, including Halliburton:
Seminole also added shares of a third oil and gas major, ConocoPhillips (NYSE:COP). While ConocoPhillips has a P/E of 9, whether we compare its valuation to its trailing earnings or to forward estimates, it has been struggling more than the peers we’ve previously discussed. Net income has been down at the company, even after accounting for the recent spinout of Phillips 66 (NYSE:PSX). Warren Buffett has been a major investor in the company, with his Berkshire Hathaway reporting a position of 24 million shares in its most recent 13F (check out Buffett’s stock picks).
Nabors Industries Ltd. (NYSE:NBR), a contract driller which generally drills onshore, was another energy stock in the fund’s portfolio. Billionaire Steve Cohen’s SAC Capital Advisors was buying shares between July and September of 2012 (research more stocks Cohen and his team liked). Nabors is down 15% in the last year as investors worry about drilling activity. The current-year P/E multiple is 13, though that depends on analyst expectations of higher earnings this year than last year. Since drilling activity depends on energy prices and therefore on macro conditions, the stock carries a beta of 2.5.
Messner and his team also liked Halliburton Company (NYSE:HAL), which had been one of the most popular energy stocks among hedge funds in the third quarter of 2012 (see more energy stocks hedge funds love). Seminole owned almost 760,000 shares of the oilfield equipment and services company. Halliburton’s earnings have been down, but we like its prospects long term and so do Wall Street analysts given the forward P/E of 10 and five-year PEG ratio of 0.9. For purposes of comparison, larger peer Schlumberger Limited. (NYSE:SLB) has been performing slightly better recently and trades at 13 times expected forward earnings.
Disclosure: I own no shares of any stocks mentioned in this article.
