By Aubrey Tabuga
B.P. Capital is a hedge fund founded by the legendary oil businessman T. Boone Pickens. Pickens was the founder of the huge oil company Mesa Petroleum, which he later sold in 1997. Being a successful oil entrepreneur for decades, Pickens has an edge in the field of energy investments. Pickens's BP Capital had returned a massive 300% in 2005. Pickens is an activist; he introduced the Pickens Plan, which aims to reduce America's dependency on foreign oil. It is among his primary intentions to achieve self-sufficiency through efficient use of alternative energy sources, such as wind and natural gas.
While Pickens has his own private investments in the alternative energy sector, his hedge fund is still heavily weighted towards traditional oil companies. In the latest quarter, BP Capital had $100 million worth of assets under its management. As expected, Pickens's big buys in the third quarter are all energy companies. These are Valero Energy Corporation (NYSE:VLO), Anadarko Petroleum Corporation (NYSE:APC), Halliburton Company (NYSE:HAL), SandRidge Energy Inc. (NYSE:SD), and Arch Coal Inc. (NYSE:ACI). I analyze each of these stocks from a fundamental perspective to see whether they are worth buying or not.
% of Portfolio
EPS (Next 5Y)
Valero Energy Corporation
Arch Coal Inc.
Sources: whalewisdom.com and finviz.com
Valero Energy Corporation is an independent petroleum refining and marketing company based in San Antonio, Texas. Its business is in refining, ethanol, and retail. Recently, the company had moved up in market cap rank taking over the No.169 spot from VF Corp. in the S&P 500. Valero Energy now has $17.857 billion in market capitalization. Currently, TheStreet Ratings gives Valero a "buy" with a B+ score.
Pickens bought additional shares of Valero Energy again in the latest quarter. He increased his stake by 49% bringing the total to 354,955 shares, or 11.38% of his total portfolio. As of the third quarter, Valero is BP Capital's top stock. It is noted that Pickens initiated his position earlier this year, then increased his holdings in the second quarter.
The stock had gained an outstanding 57.14% from the previous year. Earnings have doubled this year and are expected to bring in at least 6.13% more every year in the next 5 years. The company's profit margin, however, is a low 0.80%. In the meantime, the forward P/E ratio is at 6.86, way below the current ratio at 16.13. Valero Energy can boost an investor's dividend earnings with its yield at 2.17%. It is a loyal payer of dividends for many years already.
Anadarko Petroleum Corporation explores, develops, produces, and markets natural gas, crude oil, condensate, and natural gas liquids in the US and other countries. It is based in The Woodlands, Texas. The company, a report says, is considering a joint venture in Mozambique. This aims to help share the costs of its discovery works in the African country. TheStreet Ratings currently rates APC as a 'buy' with a B- rating.
BP Capital increased its holdings in APC in the third quarter by 43%, bringing its total stake to 92,052 shares. This is 6.51% of the total investment portfolio. The fund manager has just initiated its position during the previous quarter. The company's last appearance in the 13F of BP Capital was in 2010 when the latter sold all its shares in APC.
The stock had lost 3.76% from the previous year, although it is slowly picking up. It is up by 6.37% within a month. Meanwhile, the company enjoys a profit margin of 13.84%. Its EPS stands at $3.62 and is expected to rise to $4.15 next year. Investors can expect around 4.33% increase in earnings per share of the company in the long term. APC has been incurring losses in the past quarters. Nonetheless, the company is a loyal dividend payer. It has been paying stable amount of $0.09 since 2006.
Halliburton Company is a provider of various products and services to the energy sector worldwide for oil and gas exploration and production. The Houston-based company operates in two segments -Completion and Production, and Drilling and Evaluation. Recently, its subsidiary Halliburton Bayan Petroleum [HBP] closed a deal with oil giant Petronas to boost production of Malaysia's mature wells. It is reported that the deal is worth around $1.2 billion. Meanwhile, Fitch Ratings had just affirmed an A- rating for Halliburton's IDR.
Pickens bought new shares of Halliburton again in the latest quarter. The stake was equivalent to 5.19% of its total portfolio. Pickens had just sold his holdings off in the previous quarter after at least a couple of years of holding on to his shares.
The stock had lost 2.57% from last year, but had gained 3.28% within a month. The company's profit margin is an encouraging 10.26%. In the past, sales have been growing at 13.89% per year. So far, this has been sustained as the quarterly revenue grows by 8.60%. Investors can expect remarkable earnings in the next 5 years, for the EPS is estimated to swell by 19.31% each year. Halliburton has also a good record in paying dividends for many years.
SandRidge Energy, Inc. is an independent explorer, developer, and producer of natural gas and oil based in Oklahoma City. The company has been facing immense challenges improving its shareholder value. Unhappy shareholders are now calling for the removal of Tom Ward, the CEO and Chairman for critical management failures. In fact, the company has had poor management for years and had been on the watch list of some analysts.
SandRidge is one of Pickens's favored stocks. BP Capital had just doubled its stake in the latest quarter, after selling off a significant portion in the second quarter. SandRidge had been in the 13F Filing of Pickens for at least the last 9 quarters. The stock had already lost 28.31% from last year. It is currently operating at a loss. Despite sales growing robustly and with a decent profit margin of 8.57%, the problem comes from its mounting debt. However, once poor management goes, as analysts put it, investors may look forward to a big turnaround.
Arch Coal, Inc. is a producer and marketer of steam and metallurgical coal based out of St. Louis, Missouri. It supplies these products to power plants, industrial facilities, and steel producers around the world. The demand for coal is expected to rise, thanks to the emerging economies getting healthier. With the increasing price of natural gas, coal is also becoming more competitive.
BP Capital initiated a position in Arch Coal in the latest quarter. The stake was equivalent to 1.52% of its total portfolio. This is the first time that Arch Coal appeared in the 13F Filing of T. Boone Pickens. The stock had lost a notable 52.68% from last year. Nevertheless, it is slowly picking up. So far, it had gained 7.18% from the previous quarter. Moreover, ACI's losses per share are declining, but it would take a lot of concerted efforts to raise earnings by making significant improvements in revenues and profits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Aubrey Tabuga, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.