Many leading funds, including Blackrock, T Rowe Price, and Southeastern Asset Management, filed forms 13-D and 13-G (and form 4) with the SEC last week (June 4nd to 8th, 2012), indicating that they had amended their ownership in U.S. traded public companies operating in the basic materials and energy sectors.
In this article, based on our analysis of those filings, we detail five noteworthy buys and four sells last week for basic materials and energy sector companies (for more info on Forms 13-D and 13-G, and how to interpret that, please refer to our instablog discussion on institutional trades):
Consol Energy Inc. (CNX): CNX is a producer of bituminous coal and coal-bed methane gas primarily in the northern and central Appalachian and Illinois basins. On Friday, value guru Mason Hawkins' Southeastern Asset Management, that manages the Longleaf Partners Funds, filed SEC Form SC 13G indicating that Southeastern owns 23.5 million or 10.3% of outstanding shares, an increase from the 4.3 million shares it held at the end of Q1, which itself was a new position in that quarter. This makes Southeastern the second largest institutional holder of CNX shares, behind T Rowe Price that held 28.8 million shares at the end of Q1.
CNX shares have plunged recently, cut in half from the highs last year, and down by about 24% YTD, but with the drop being generally in line with the average move for coal mining stocks during that period. Earnings have also begun to fall off, with the company missing analyst earnings estimates in the most recent Q1 (42c v/s 58c), but also cut in half year-over-year compared to the 84c it recorded in 2011's March quarter. The drivers have been a seasonally warm winter, a weakened global economy, and lower natural gas prices, all of which have contributed to lower coal prices and profits for the coal miners.
Its shares currently trade at 11-12 forward P/E and 1.7 P/B compared to averages of 10.5 and 1.6 for its peers in the coal mining group, while earnings are projected to fall going forward from $3.04 in 2011 to $1.79 in 2012 and then rebound to $2.40 in 2013. However, at its current 12 P/E on a TTM (trailing-twelve-month) basis, the stock trades at the lower end of its historic trading range of generally between 8 and 80. Furthermore, speculation has begun to grow that coal stocks may have bottomed (or indeed be close to one), a scenario in which CNX would do well given its cost leadership and strong financial position, and would be well-positioned to take advantage of any rebound in coal prices due to an improving global economy and rising natural gas and coal prices.
In addition to CNX, institutions also indicated via their 13D/G filings last week that they accumulated shares in the following four basic materials and energy sector companies, the first three of which also have seen plunging stock prices recently:
- Chesapeake Energy (CHK), an independent oil and gas company, with its primary operating assets in mid-continent region of Oklahoma, western Arkansas, southwestern Kansas and the Texas panhandle, in which Southeastern Asset Management filed SEC Form SC 13D/A indicating that it holds 92.0 million or 13.9% of outstanding shares, an increase from 89.9 million shares it indicated holding in an earlier filing just over a month ago, and also an increase from the 86.6 million shares it held at the end of Q1;
- Ivanhoe Mines Ltd. (IVN), a Canadian company engaged primarily in the exploration of gold and copper mines in central Asia and the Asian Pacific region, in which Temasek Holdings, the government of Singapore's S$185 billion investment company, one of the many sovereign wealth funds, filed SEC Form SC 13G indicating that it holds 40.9 million or 5.5% of outstanding shares, a new position for the investment company;
- Golden Star Resources (GSS), that is a Canadian international gold mining and exploration company producing gold in Ghana, West Africa, in which Milwaukee, WI-based small-cap value-focused investment management firm Heartland Advisors Inc. filed SEC Form SC 13G/A indicating that it holds 28.0 million or 10.8% of outstanding shares, an increase from the 22.2 million shares it held at the end of Q1, thereby also making it the largest institutional holder of GSS shares; and
- Range Resources Corp. (RRC), that is engaged in the exploration and production of oil and natural gas in the south-western and Appalachian regions of the U.S., in which T Rowe Price Associates filed SEC Form SC 13G/A indicating that it holds 17.4 million or 10.7% of outstanding shares, an increase from the 11.8 million shares it held at the end of Q1.
On top of these, institutional investors also indicated via their 13D/G filings last week that they cut their positions in the following basic materials and energy sector companies:
- Novagold Resources Inc. (NG), that is a Canadian company engaged in the exploration and development of gold, silver and copper in Alaska and British Columbia, in which Los Angeles-based international-focused investment management firm Tradewinds Global Investors filed SEC Form SC 13G/A indicating that it holds 11.9 million or 4.3% of outstanding shares, a decrease from the 20.2 million shares it held at the end of Q1;
- Baker Hughes Inc. (BHI), that provides wellbore products and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the global oil and natural gas industry, in which the world's largest and most prominent asset manager, Blackrock Inc., with over $3.5 trillion in assets under management, filed SEC Form SC 13G/A indicating that it held 21.1 million or 4.8% of outstanding shares, a decrease from the 23.1 million shares it indicated holding in an earlier filing in February;
- Rowan Co. Inc. (RDC), which is a provider of offshore contract drilling services to the oil and natural gas industry, both domestic and international, in which Blackrock Inc. filed SEC Form SC 13G/A indicating that it holds 5.6 million or 4.5% of outstanding shares, a decrease from the 10.7 million shares it indicated holding in an earlier filing in February; and
- Talisman Energy (TLM), that is a Canadian company engaged in oil, natural gas liquids and natural gas exploration and production internationally, in which Blackrock Inc. filed SEC Form SC 13G/A indicating that it holds 48.0 million or 4.7% of outstanding shares, a decrease from the 56.4 million shares it indicated holding in an earlier filing in February.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, 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.