Why Are These Four Energy Companies Surging Today?

Shares of Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), Phillips 66 (NYSE:PSX), and Marathon Petroleum Corp (NYSE:MPC) are trending upwards after each reported its latest quarterly earnings. Given that quarterly earning reports are one of the best predictors of the future direction of stocks, let’s take a closer look at each company’s report and examine hedge fund sentiment towards the companies.

Chevron Corporation (NYSE:CVX) shares are up by 1.47% after the super-major reported third quarter earnings of $1.09 per share on revenues of $34.3 billion (down by 37.3% year-over-year), beating estimates by $0.33 per share and $4.54 billion, respectively. Despite the soft crude prices, Chevron’s upstream business made $59 million in profits in the quarter while its downstream business made $2.21 billion in earnings. Net oil-equivalent production was 2.54 million barrels/day, a slight decline from last year’s 2.57 million barrels/day. We’re bullish on Chevron for the long-term, as it is one of the strongest companies in the sector. Oil prices can’t stay below $50 per barrel forever, as the IMF estimates Saudi Arabia will run out of reserves in five years if the country continues its current pace of production. Of the around 730 elite funds we track, 50 funds reported holding stakes in Chevron worth $2.11 billion as of the end of June, up from 47 funds with $1.49 billion in holdings at the end of March. Ken Fisher’s Fisher Asset Management is one of the largest shareholders of Chevron, with a stake of 2.62 million shares as of September 30. 

Why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, returning 102% (see the details here).

Exxon Mobil Corporation (NYSE:XOM) shares rallied by 1.25% after the oil giant reported third quarter earnings of $1.01 per share on revenues of $67.34 billion (down by 37.1% year-over-year), beating estimates by $0.12 per share and $3.59 billion, respectively. Upstream earnings were $1.4 billion while its downstream earnings came in at $2 billion. Oil equivalent production for the quarter was 3.9 BOE/day, up by 2.3% year-over-year. Exxon’s strong results are a testament to the company’s low cost of production and its integrated operations. We like this stock for the long-term as well, as the company has a fortress balance sheet and can use the period of weak crude prices to buy up production or reserves on the cheap. Hedge funds are mixed on Exxon Mobil Corporation. Of the 730 elite funds we track, 67 owned $3.64 billion worth of the company’s shares as of June 30, or just 1.00% of the float, versus 63 funds with $4.01 billion in shares on March 31. Donald Yacktman’s Yacktman Asset Management owned 6 million shares at the end of June, while Phillip Gross and Robert Atchinson’s Adage Capital Management owned 4.84 million shares at the end of the second quarter.

On the next page, we examine why Phillips 66 and Marathon Petroleum are up.
Phillips 66 (NYSE:PSX) is up by 4.43% after reporting third quarter earnings of $3.02 per share, beating estimates by $0.78 per share. Refining utilization increased 6 percentage points to 96% year-over-year as demand for gasoline and other refined products remained strong due to lower prices and a strong economy. Margins are healthy as Saudi Arabia continues to manipulate crude prices lower in its attempt to drive the weaker crude producers out of the market. Management is sharing the good times with shareholders, with the board recently approving an increase to its share repurchase program of $2 billion. Given Friday’s rally, shares are now up by more than 25% year-to-date. 35 funds owned stakes worth $2.8 billion in Phillips 66 at the end of the second quarter, with Warren Buffett of Berkshire Hathaway recently upping his stake to 61.5 million shares from 58 million shares.

Marathon Petroleum Corp (NYSE:MPC) rallied by 2% after reporting third quarter earnings of $1.76 per share on revenues of $18.76 billion, missing estimates by $0.06 per share and $1.36 billion, respectively. Although the results were a bit softer than expected, Marathon Petroleum Corp’s medium-term outlook is still solid, given the ‘lower for longer’ crude prices and the strong U.S economy. The Obama administration continues to oppose WTI exports as well, helping preserve the crack spread. Also helping support shares is Marathon Petroleum’s buybacks. The company bought back $156 million in shares in the third quarter, and still has approximately $3 billion remaining in its buyback authorization.

Disclosure: None