Legendary investor T. Boone Pickens recently appeared on SquawkBox (see the video here). The primary subject of conversation was President Obama's newly unveiled energy initiatives, and, more specifically, the parallels between those initiatives and the Pickens Plan.
The Pickens Plan is Pickens' push to rid the country of its dependency on foreign oil. Pickens outlined his plan in July 2008. For almost four years, he has invested almost $100 million and thousands of hours to educate the public and Washington policymakers on the need to address the OPEC oil threat. And Pickens' efforts seem to have taken root.
President Obama is now in agreement with Pickens that utilizing domestic resources was the only way to significantly reduce dependence on OPEC oil and the only domestic resource to do that was to move heavy-duty trucks and fleet vehicles from imported diesel to domestic natural gas.
Here are a few quotes from the interview, followed by our comments about how we can invest in accordance with his views. Here Pickens is speaking about President Obama.
He said we have to cut down on imports from the Mideast, one. That was right on the front end of our deal. He also even mentioned renewables. We did that, too. But, we said get your own resources. Honestly, if we don't get our own resources we got to be really stupid people.
And here we are, and got a model of this. When you switch, talking about heavy duty trucks and I want to move off diesel and on to natural gas. Well, natural gas is a dollar and a half cheaper. That's what's happening right now. But, one other point, we did this back in '72, when we switched from natural gas to diesel.
Diversified stocks like Goodrich Petroleum (GDP), EOG Resources (NYSE:EOG) or Exxon Mobil (NYSE:XOM) are good picks in the natural gas industry for investors who are bullish on natural gas but hesitant to bet the farm. GDP has shale drilling operations in Eagle Ford, which is one of the more profitable drilling areas. When the company released its 2012 growth and spending guidance, it reported a reduction in per-well costs of $2.5 million and also announced plans that it would grow oil production 130% to 160%. The growth prospects for the company are solid, and the stock should see upside over the next few years.
EOG is another good pick. It is expected to see an earnings growth increase of 75% in the next five years, according to analysts' estimates. The stock was recently upgraded to "buy" at Deutsche Bank on the back of strong production trends from Eagle Ford in the second half of 2011. Increased reserve potential at Eagle Ford is expected to continue as EOG makes more efficient use of its space. Ric Dillon's Diamond Hill Capital likes EOG.
More risk-averse investors should consider XOM, a larger and more diversified company than EOG or GDP. Its XTO Energy subsidiary operates in the Marcellus Shale in the Appalachian basin and has had success in extracting natural gas. Its dividend yield of over 2% also makes XOM a conservative investment in the natural gas industry. Ken Fisher's Fisher Asset Management also likes XOM.
Investors may also want to consider natural gas companies like Devon Energy Corp (NYSE:DVN), Newfield Exploration (NYSE:NFX), Cheniere Energy (NYSEMKT:LNG), BP Plc (NYSE:BP), and Southwestern Energy Co (NYSE:SWN). T. Boone Pickens' hedge fund had BP, DVN, EOG and XOM in its 13F portfolio at the end of September. Pickens' other large bets also include Chesapeake Energy (NYSE:CHK) and McMoran Exploration (NYSE:MMR). JPMorgan downgraded Chesapeake last week and put a price target of $14.50 on CHK which is currently trading at around $21.50.
Disclosure: I am long CHK.