By Matt Doiron
T. Boone Pickens made his money in energy, and now he puts a portion of his wealth to work by investing in energy stocks through BP Capital. BP Capital files 13Fs quarterly with the SEC (see what stocks Pickens liked last quarter), and by comparing its filing for the third quarter to its filing for the second quarter we can see which stocks Pickens sold out of completely between July and September. Here are the five largest holdings from the end of June which BP had sold all its shares of three months later:
EnCana Corporation ECA had been one of Pickens' ten largest positions at the end of the second quarter, at about 340,000 shares, but wasn't in the portfolio according to the most recent filing. Encana is an integrated oil and gas company operating throughout Canada and the United States. Its business has been suffering recently, with revenue falling 56% in the third quarter compared to the same period in 2011. The market seems to think that the company will recover, as it currently trades at 29 times forward earnings estimates, but we would say there are much better deals in oil & gas.
Pickens also sold out of Cabot Oil & Gas Corporation COG, an independent producer of oil and gas in the United States. Cabot actually reported 13% revenue growth last quarter versus a year earlier, and net income rose by 29%. Given trends in pricing this suggests that the company is achieving very good production numbers. However, at a market capitalization of $10 billion, the market is pricing in very high growth expectations (the trailing P/E is 86). Fellow billionaire Dan Loeb's Third Point trimmed its stake by 13% during the quarter, though the fund still owned 1.8 million shares (find more stocks Loeb is buying and selling).
BP had owned about 180,000 shares of another independent oil and gas company, Canadian Natural Resource Ltd CNQ, at the beginning of July and then sold all of its shares. In terms of its earnings multiples, Canadian Natural Resources looks attractive at trailing and forward multiples of 13 and 12, respectively. However, like Encana it has been performing poorly in recent quarters and in its most recent report announced that earnings had decreased 57% compared to the same period in the previous year. We would want to take a look at the company to see if it can stabilize its business; unless we find severe problems we don't think selling is necessary.
Anadarko Petroleum Corporation APC placed second on our list of the most popular energy stocks among hedge funds (see the full rankings), but Pickens actually sold his shares in the $37 billion market cap oil and gas company which is involved in exploration and production, midstream activities, and marketing. Anadarko is another oil company whose valuation is dependent on growth; it trades at 20 times trailing earnings, but hasn't been achieving very good results with its revenue slightly down recently. Given the hedge fund interest and Pickens' negativity, we plan to review the company more closely.
Pickens had cut his holdings of Weatherford International Ltd WFT by 54% in the second quarter, and the 13F reported that he had followed this move by selling the rest of his shares. Unlike the other companies on this list, Weatherford is an equipment and services company, as opposed to an oil and gas producer. Its stock is down 33% in the last year. During the third quarter, revenue rose in all geographies from its levels a year earlier but net income was down. The stock actually doesn't look that bad to us; its trailing P/E is 23, but that includes a number of charges from earlier this year, and the forward P/E is only 9. We wouldn't sell it either and it might be worth taking a closer look at Weatherford as a value play.
Disclaimer: This article is written by Insider Monkey's writer, Matt Doiron, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.