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The average independent oil and gas exploration and production company has pulled back almost 40% since hitting the highs just over two months ago. This is based on fears of a global economic slowdown, driven primarily by recessionary conditions in the developed economies of the U.S. and EU, but also influenced by the projected government-influenced slowdown in China in their effort to curb domestic inflation. While the sector is cyclical and typically subject to wide swings, the velocity of the current down-draft is even higher than the weakness we saw in the summer of 2008 prior to the economic meltdown in 2008/09. We believe that the sector is currently over-sold, and while it is difficult to predict a bottom, we believe that in the long-term oil and gas prices and the valuations of the companies that produce it are going up, driven by both demographics and an increase in consumption in developing countries. As such, long-term investors may view the current drop as an opportunity to get into some exciting companies at rock-bottom valuations.

We looked for companies that are trading at value prices, based on their projected earnings and cash flow, and we crossed them with those that were being accumulated or sold by legendary fund managers such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers. The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.

The following are the independent oil and gas exploration and production companies that gurus accumulated the most in the recently reported June quarter, and that are also trading at a discount to their peers in the group based on price-to-cash-flow. Furthermore, the list also includes select exploration companies that gurus are bearish about based on their recent filings:

Gurus Bullish on Value Buy Sandridge Energy Inc. (NYSE:SD): SD is an OK-based independent oil and natural gas company, with their primary areas of focus being West Texas, the Cotton Valley Trend in East Texas and the Gulf Coast. Guru funds together added a net $9 million to their $275 million prior quarter position. Furthermore, together guru funds are over-concentrated in the company and control 10.4% of the outstanding shares, which is far in excess of their 2.2% average weighting in the group. Major holders of SD include Fairfax Financial Holdings ($164 million) and Weitz Wallace R & Co. ($42 million). SD trades at a discount 5.2x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bullish on Value Buy Chesapeake Energy (NYSE:CHK): CHK is an independent oil and gas company, with its primary operating assets in mid-continent region of OK, western AR, southwestern KS and the TX Panhandle. Guru funds together added a net $251 million to their $2.78 billion prior quarter position. Furthermore, together they are over-concentrated in CHK as they control 15.6% of the outstanding shares, which is far in excess of their 2.2% average weighting in the group. Major buyers of CHK last quarter included Southeastern Asset Management Inc. ($246 million), Ariel Investments ($51 million) and Kingdon Capital Management LLC ($16 million). CHK trades at a discount 3.9x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bullish on Value Buy Penn West Petroleum (NYSE:PWE): PWE is an open-end investment trust engaged in the exploration, development and production of oil and gas, mainly in western Canada. Guru funds together added a net $26 million to their $349 million prior quarter position. Furthermore, together they are over-concentrated in PWE as they control 4.6% of the outstanding shares, which is far in excess of their 2.2% average weighting in the group. First Eagle Investment Management LLC was the only major buyer with a $38 million buy; major holders of PWE at the end of the June quarter included Viking Global Investors LP ($228 million) and First Eagle Investment Management LLC ($135 million). PWE trades at a discount 5.9x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bullish on Value Buy Whiting Petroleum Corp. (NYSE:WLL): WLL is an independent oil and gas company, with primary interests in the Permian Basin, Rocky Mountains, Mid-Continent, Gulf Coast and Michigan regions of the U.S. Guru funds together added a net $140 million to their $119 million prior quarter position. Furthermore, together they are over-concentrated in WLL as they control 5.0% of the outstanding shares, which is far in excess of their 2.2% average weighting in the group. Major buyers of WLL included Maverick Capital ($101 million), Royce & Associates LLC ($18 million) and Capital Growth Management LP ($14 million). WLL trades at a discount 3.2x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bullish on Value Buy Canadian Natural Resources (NYSE:CNQ): CNQ is a senior independent oil and natural gas exploration, development and production company based in Calgary, Alberta. Its operations are focused in western Canada, the North Sea and Offshore West Africa. Guru funds together added a net $132 million to their $203 million prior quarter position. Major buyers of CNQ included First Pacific Advisors’ (NYSEARCA:FPA) Crescent Fund ($100 million) and RS Investment Management ($30 million). CNQ trades at a discount 5.5x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bullish on Magnum Hunter Resources (NYSE:MHR): MHR is an independent oil and gas company engaged in the acquisition, drilling and production of oil and natural gas properties in the U.S., primarily in TX, LA, ND, NM and KY. Guru funds together added a net $2 million to their $2 million prior quarter position. Keeley Asset Management Corp was the only buyer with a $4 million buy. MHR trades at an expensive 66.5x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bearish on Kodiak Oil & Gas (NYSE:KOG): Denver-based KOG is an independent energy exploration and development company focused on exploring, developing and producing oil and natural gas in the Williston and Greater Green River Basins in the U.S. Rocky Mountains. None of the 60+ guru funds held a position in KOG at the end of the June or the prior March quarter, which is bearish considering that this is a major $1 billion market-cap company. Furthermore, KOG trades at an expensive 33.0x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bearish on Abraxis Petroleum Corp. (NASDAQ:AXAS): AXAS is an independent energy company engaged primarily in the acquisition, exploration, and production of oil and natural gas in the U.S. and Canada. Guru funds together cut a net $13 million from their $18 million prior quarter position. Major sellers of AXAS included Third Point LLC ($11 million) and Driehaus Capital Management ($1.3 million). AXAS trades at an 8.4x trailing 12-month cash flow, almost on par with the 9.0 average for the group.

Gurus Bearish on Andarko Petroleum Corp. (NYSE:APC): APC is one of the world’s largest independent oil and gas exploration and production companies, with a majority of its reserves located in the U.S., in the mid-continent in KY, OK and TX, offshore in the Gulf of Mexico, and in AK. Guru funds together cut a net $120 million from their $813 million prior quarter position. Major sellers of APC included Fisher Asset Management LLC ($327 million) and Kingdon Capital Management LLC ($14 million). APC trades at a discount 5.5x trailing 12-month cash flow, compared to the 9.0 average for the group.

Gurus Bearish on Occidental Petroleum (NYSE:OXY): OXY is engaged in the exploration and production of crude oil and gas worldwide. Guru funds together cut a net $33 million from their $1.1 billion prior quarter position. Furthermore, together they are under-concentrated in OXY as they control 1.6% of the outstanding shares, which is short of their 2.2% average weighting in the group. OXY trades at a discount 5.3x trailing 12-month cash flow, compared to the 9.0 average for the group.

General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in the above Table and in article.

These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.