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By Ahmed Ishtiaq

T. Boone Pickens is one of the most well-known billionaire businessmen in the U.S. Pickens has a vast amount of business experience in the energy sector. The circumstances of T. Boone Pickens's career contributed massively to the success of this geologist turned financial magnate. Born in 1928 in Holdenville, Oklahoma, Pickens was the son of oil and mineral land man and a mother who worked in the local Office of Price Administration. Before founding Mesa Petroleum in 1956, he worked for Phillips Petroleum for several years.

Pickens was the king of takeovers and acquisitions during the 1980s. After taking over the Hugoton Production Company, he led the acquisitions of Pioneer Petroleum and of Tenneco's mid-continent assets. In 1997, he also founded the Pickens Fuel Corporation, and began pushing natural gas as the top vehicular fuel option, since it emits up to 30 percent fewer pollutants than gasoline or diesel, as well as reducing foreign oil consumption. Reincorporated as Clean Energy Fuels Corp. in 2001, the company now owns and operates natural gas fueling stations from British Columbia to the Mexican border.

Besides being a successful businessman, Pickens is also the Chairman and CEO of BP Capital, an energy-intensive commodity and equity fund based in Dallas, Texas. Unsurprisingly, the fund is heavily concentrated on energy-related stocks. According to Whale Wisdom, BP Capital has about $100 million of assets under management. BP Capital recently filed its last quarter 13F with the SEC, reporting five new purchases, two additional stocks, reduced holdings in twelve stocks, and four sold out stocks. In this article, I will examine his new stock picks using fundamental analysis methods. These are Marathon Oil (NYSE:MRO), New Field Exploration (NYSE:NFX), Occidental Petroleum (NYSE:OXY), Weatherford International (NYSE:WFT), and Freeport McMoRan (NYSE:FCX). I analyze each of these stocks from a fundamental perspective to see whether they are worth buying or not.

Stock

Shares Held

Market Value

% of Portfolio

% Change

YTD Return

Marathon Oil

184,900

$5.7 million

5.62%

New

13%

New Field Exploration

211,703

$5.67 million

5.62%

New

1.4%

Occidental

63,000

$4.8 million

4.79%

New

10.5%

Weatherford International

422,920

$4.7 million

4.70%

New

15%

Freeport McMoRan

97,000

$3.3 million

3.29%

New

3.4%

Sources: whalewisdom.com and finviz.com

Marathon Oil returned about 13% in January, and closed last week an inch higher. The stock is in high momentum and it gained about 50% since last June. In the last quarter, BP Capital initiated a new purchase of 184,900 shares, which currently corresponds to 5.62% of BP Capital's portfolio. It is among T. Boone Pickens' top holdings.

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Even after providing substantial returns in the last 6 months, Marathon Oil is still trading below its target price. Analysts have an average target price of $39, which implies about 20% upside potential from the last closing price. The company offers a trailing yield of 2%, and retains about 75% of its earnings. Based on an ROE of 10%, the sustainable growth ratio can be estimated as 7.5% for the long term. The forward P/E ratio of 10.7 suggests that the stock is a cheap one. However, I would rather wait for a pullback as it is trading near 52-week high levels.

New Field Exploration is an independent energy company that primarily operates in the Mid-Continent, the Rocky Mountains, and Texas, as well as in Malaysia and China. Founded in 1988, the company is headquartered in Woodlands, Texas.

New Field is a highly volatile stock. It closed the week almost 8.5% lower, but the year-to-date return is still in the positive territory. The stock has a wide 52-week trading range of $23 - $43. In the last quarter, BP Capital initiated a new purchase of 211,703 shares, which currently corresponds to 5.62% of BP Capital's portfolio. Similar to Marathon Oil, it is among T. Boone Pickens' top holdings.

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New Field Exploration is trading at attractive valuation ratios. Its forward P/E ratio is 11. Currently, the stock is trading below its target price. Analysts have an average target price of $39, which implies about 40% upside potential from the last closing price. It is also trading at a discount to book value. The company does not offer dividends yet. While the high debt/equity ratio is a red flag, the company is operating with a stable financial leverage. The forward P/E ratio of 11 is below the trailing P/E ratio of 12.8. I think the stock is a cheap one, and the current price level offers a fair entry point.

Occidental is a major integrated oil and gas company. While the company is headquartered in the U.S., it has operations worldwide. In December, one of the directors purchased about 5000 shares that amounted to a value of $367,150. Since then, the stock gained almost 15%. While it ended the week 4% lower, the year-to-date return stands about 10.5%.

Similar to New Field Exploration, Occidental is a volatile stock. It has a wide 52-week trading range of $72 - $104. In the last quarter, BP Capital initiated a new purchase of 63,000 shares, which currently corresponds to 4.79% of BP Capital's portfolio.

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T. Boone Pickens prefers to invest in undervalued stocks and Occidental is no exception. It is trading at attractive valuation ratios. Its forward P/E ratio is 10.8. At the current valuation level, the stock is trading below its target price. Analysts have an average target price of $99, which implies about 15% upside potential from the last closing price. However, with a P/B ratio of 1.7, it is trading at a premium to book value. The company does not have any significant debt issue, and it is operating with a low leverage. Occidental offers a trailing yield of 2.55%, which is more than fully covered by both earnings and cash flows. The forward P/E ratio is below the trailing P/E ratio of 11.64. I think the stock is a cheap one, and the current price level offers a fair entry point. UBS has a buy rating with a target price of $97.

Weatherford International provides oil & gas equipments and services worldwide. The company is headquartered in Geneva, Switzerland. Insiders are highly bullish on this stock and they keep buying. Several insiders purchased shares worth more than $1.2 million in December. Since then the stock gained almost 15%. While it ended the week 3% lower, the year-to-date return stands about 15%.

Similar to other purchases by T. Boone Pickens, Weatherford is a volatile stock. It has a wide 52-week trading range of $8.8 - $18.2. In the last quarter, BP Capital initiated a new purchase of 422,920 shares, which corresponds to 4.70% of BP Capital's portfolio.

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Weatherford is trading at attractive valuation ratios. Its forward P/E ratio is 12.8. At the current valuation level, the stock is trading below its target price. Analysts have an average target price of $14, which implies about 10% upside potential from the last closing price. On the negative side, the company reported operating losses of $670 million in the last year. With a P/B ratio of 1.2, it is trading at a slight premium to book value. It also has some debt issues. While insiders are really bullish, I am not sure whether the stock is a cheap one. Nevertheless, Deutsche Bank has a buy rating with a target price of $20.

Freeport McMoRan is the only non-energy company in the list. Freeport McMoRan is a well-known company, which is among the leading basic material producers in the world. It is headquartered in Phoenix, Arizona. Recently, FCX announced a definitive agreement to acquire Plains Exploration & Production Company and McMoRan Exploration. The planned merger will take place in the second quarter of 2013. Shareholders of Freeport McMoRan were highly disappointed with the offer. FCX lost almost 20% and fell below $30 after the deal announcement. In the last quarter, BP Capital initiated a new purchase of 97,000 shares, which currently corresponds to 3.29% of BP Capital's portfolio.

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I think the market over-reacted to the merger announcement. Surely, the premium price paid will increase the debt, and it can also dilute the number of shares. However, that is not enough to explain a market cap loss of $6 billion. Once the market digested the merger news, the stock bounced back and regained most of its losses. Yet, the stock is still trading well below its 52-week highs. Its forward P/E ratio of 7.4 is also substantially below the trailing P/E ratio of 11. Analysts have an average target price of $40, which implies about 15% upside potential from the last closing price. UBS has a buy rating with a target price of $39. My FED+ Fair value estimate suggests a fair value range of $48 - $66.

Source: 5 Big Buys By T. Boone Pickens