Today we took a look at T. Boone Pickens' newest portfolio positions. As always use the list below as a starting point for your own research.
Chesapeake Energy Corporation (NYSE:CHK)
Chesapeake Energy Corporation is a major gas producer in the US. Investor sentiment seems to be mixed about the oil and gas sector in the recent trading hours as closely linked oil prices are extremely volatile. This may be due to mixed economic data containing both positive and negative developments. Oil traders were waiting for the monthly employment report which essentially delivered zero jobs in August, 2011.
The employment rate is expected to go up to 9.2% from 9.1% in July. Additionally, the world’s biggest consumer of energy China is witnessing expansion in manufacturing activity. Coming back to the company’s specific situation, CHK is the number one producer in Marcellus and also, started drilling oil rich Utica Shale recently. It is well ahead of the competitors in the region including Range Resources Corporation (NYSE:RRC) and Anadarko Petroleum Corporation (NYSE:APC).
The Marcellus is expected to produce 25% of the total gas production in the country by 2020 according to the study by Marcellus State Commission. CHK is in a good position to take advantage of the future output from this huge resource. The natural gas stocks leading the energy market recently with CHK on the top with an appreciation of 6.13% since the start of the week against 3.14% of BP Plc (NYSE:BP). CHK is offering good fundamental upside gain potential at current level as the fair value of the company is $40.24 compared to present trading price of $32.04.
Noble Corporation (NYSE:NE)
Noble Corporation is a leading offshore contractor for the oil and gas industry. It operates with a felt of 79 offshore drilling units located worldwide. After witnessing heavy pressure from the post oil spill environment, the offshore drilling industry is expected to be normalizing in the coming months. The industry came in light in the form of increased government regulations especially in the United States which aims to bring drilling activities into more oversight.
Another problem surfaced over the recent past is the high insurance premiums because of natural disasters and political instability in the operating regions. The company with strict controls over this will be in a position to dominate in the industry. As of September 3, 2011, NE stock is trading at $32.66 down by 3.61%. The stock is trading at the forward price to earnings multiple of 8.45 below than its main competitor Diamond Offshore Drilling Inc. (NYSE:DO) as well as the industry. The diversified revenues of the company are making it special in the eyes of investors as it is less prone to the increased government regulations in the US.
With highest international utilization rates, the company is operating in Brazil, North Sea and Middle East. In addition to that, the company is making huge investments to add and upgrade its fleet as the utilization capacity of new rigs is 30% higher than the old ones. The recent announcement of new ultra deepwater drillship with an investment of $630 million is an example.
Moreover, the stock price went down significantly after the lower than expected results in the recent quarter due to the fleet maintenance charges. Considering the recent positive developments, the stock is worth noticing by the investors as evident from its one year average target fair value of $46.76. NE looks like a good buying opportunity but investors should define their downside risk properly.
BP Plc (BP)
BP engages in oil exploration and production with operations mainly in the Gulf of Mexico and provides fuel for transportation, retails services and petrochemical products. BP stock is certainly feeling the heat these days as news of the shutdown due to the storm and deadlock with Russian counterparts on the joint venture is surrounding the company.
Two giants in the Gulf of Mexico including BP and Anadarko Petroleum Corporation (APC) are shutting down their operations and evacuating their workers as the storm is expected to hit the area. BP is the largest producer in the area including the Thunder Horse Project, the world’s largest with a production capacity of 250,000 barrels per day. In addition to that, TNK-BP, a joint venture in Russia which represents about 30% of BP’s production is in trouble because of recent raids.
As a result, BP shares are consistently facing selling pressure and are down by 3.07% to as low as $36.63. BP share price has also hit its 52-weeks low of $35.91 during Friday’s trading session due to massive selling by investors. It is big when compared to a close competitor Exxon Mobil Corporation (NYSE:XOM) with a change of negative 0.26%.
BP is facing a double blow as compared to its competitors and there might be a rush on the part of investors which is expected to continue in the coming days. Investors are recommended to start accumulating gradually BP shares in their portfolio with proper downside risk defined.
Plains Exploration & Production (NYSE:PXP)
Plains Exploration & Production is an independent oil and natural gas producer. The company seems to be on analyst's radar these days due to the increasing production figures from the last year and the recent earnings reported in the last month which surpassed the market consensus estimates. Additionally, China being the biggest consumer of energy is witnessing expansion in manufacturing activity which can be considered as good omen for the oil suppliers.
The stock opened on a positive note during the start of last week with an appreciation of about 6.05% against 3.58% appreciation of Anadarko Petroleum Corporation (APC), a direct competitor. Moreover, it is trading at much cheaper price to earnings multiple of 21.24 as compared to 42.77 of APC. After the recent turmoil in the markets, almost all companies faced downward revision in their stock prices and PXP is no exception in this regard.
The stock is down by 3.50% in the trading hours of Friday to trade at a price of $28.36. PXP is already down by more than 32.30% from its 52-weeks high of $41.96 which it made on July 21, 2011. A cautious stance is recommended to investors at current level.
McMoRan Exploration Company (NYSE:MMR)
McMoRan Exploration Company is engaged in exploration and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast areas of US. The energy stocks including MMR are creating hype in the market these days and no doubt on the recommended list according to the majority of the analysts. The recent signs of increased manufacturing activity by the world’s largest consumer of energy, China are also a positive development.
Oil investors will also keep a close eye on the economic trends and this month's employment figures. Moreover, the exposure by well known investor Boone Pickens in MMR is also adding to MMR publicity. After the recent crush down in the market, the bulls are coming back especially in the energy stocks and the sector presents an opportunity for investors.
The energy sector in general and MMR stock in particular are gaining momentum as evident from the positive appreciation of about 9.16% from the last week against 2.05% of Chevron Corporation (NYSE:CVX). The company seems to be weak in terms of profitability but is ahead of its competitors as well as the industry in terms of quarterly revenue growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.