T. Boone Pickens is the founder of BP Capital (no relation to BP Plc). Pickens cut his teeth as an oil man. Instead of growing his oil company by exploration alone, Pickens took the unique route of acquiring businesses to grow his company. He was so successful at it, that he eventually turned his knack for investing in energy companies into a full grown business, investing in the energy markets through his fund. Pickens is a directional investor, meaning that he forecasts the movements of the energy markets and makes large bets accordingly. It also means that his losses can be staggering as his gains.
In the third quarter, Pickens increased just three positions – two were new buys and one was a position increase. As we approach the end of the fourth quarter, let’s take a look at Pickens’ favorite positions and see whether they can offer any advantage to the average investor:
Devon Energy Corp (DVN) is a company that acquires, explores, develops and produces natural gas and oil in the U.S. It has 2.04 million barrels of oil in proved developed reserves, which it sells to refiners, industrial users, utility companies and others. DVN was trading at $65.36 a share at open on Monday December 12, with a one-year target estimate of $92.75. It also pays a 68 cents dividend, or roughly 1.10% at its current price. DVN is definitely priced to buy. It is trading at 5.67 times its current earnings and 9.23 times its forward earnings. Its ex-dividend date is December 13, so owners of the stock as of the close of December 12 will get 17 cents dividend. The company is in a solid financial position. It has good revenue growth (28.90%) and debt less than half its total asset value. As if that wasn’t exciting enough, DVN just won approval for a $1.3 billion oil sands project. Its earnings growth has been disappointing over the last five years, shrinking 2.92% per annum, but its earnings are forecasted to grow by 10.33% per annum over the next five years, vs. 16.04% for its industry and 15.56% for its sector over the same period. It may not be on par, but its new oil sands project could change that. Pickens had over 140,000 shares in the company at the end of the third quarter. The position was a new buy for the oil man. It takes up over 6.7% of his portfolio and is valued at roughly $7.8 million. Ric Dillon’s Diamond Hill Capital is also a fan.
Exxon Mobil Corp (XOM) is one of the largest oil and gas companies in the world. It deals in the exploration and production of crude oil and natural gas as well as their transportation and sale. XOM has 35,691 gross and 30,494 net operated wells. It was trading at $81 with a one-year target estimate of $90.44. It also pays a $1.88 dividend. XOM is priced at 9.59 times its current earnings, and 9.48 times its forward earnings. Its next ex-dividend date is in the first week of February, so there is still time to buy in. XOM has good revenue growth – at 31.50%, it is beating rival Chevron (CVX), which weighs in at 26.20% quarterly revenue growth. XOM has moderately high debt, coming in at just over 50% of the value of its assets, but XOM has had a series of big deals lately, as the company buys up smaller exploration companies. Its earnings have shrunk by 1.02% over the last five years but are forecasted to growth by 9.11% per annum over the next five years. Once its acquisitions pay off, XOM could easily surpass those estimates. In any case, its high dividend helps make up for the smaller upside. XOM was also a new position for Pickens in the third quarter. He opened his stake with 94,310 shares – a position valued at $6.9 million or almost 6% of his total portfolio. Ken Fisher’s Fisher Asset Management also likes XOM.
Gastar Exploration (GST) is a natural gas and oil company focused on the U.S. The company acquires, explores and develops deep structural reserves. It holds leases on over 120,000 gross acres as well as a 40% non-operated working interest in a 43,400 acre parcel in the Powder River Basin. GST opened trading December 12 at $3.33 a share with a one-year target estimate of $5.43. Unlike a lot of other oil and gas companies, GST does not offer a dividend, but its strong upside makes up for it. GST is priced at 13.12 times its forward earnings. It has much lower quarterly revenue growth than DVN or XOM at just 10.80%, but the company has practically no debt. It also has a beta around 0.82, meaning it is much less volatile than the market in general. Pickens upped his stake in GST by almost 5% in the third quarter, bringing his total position in the company to 1.26M shares – a value of $3.78M or 3.27% of his total portfolio. It was the only position that Pickens increased during the third quarter. GST is also a favorite of Paul Reeder and Ed Shapiro’s Par Capital Management.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.