By Guan Wang
For ordinary investors, listening to the recommendations of experienced money managers is always helpful. Jim Cramer's Mad Money, for example, is a good source of getting investment ideas. Cramer used to be a hedge fund manager and generated stunning returns during his tenure. He retired in 2000 and later became the host of Mad Money. Cramer shares his opinions about various publicly traded companies during the TV show, helping the audience make informed decisions about their own investments. In this article, we are going to take a closer look at a few of the energy stocks that Cramer recommended the most this month. By investing in energy stocks, investors can gain exposure to oil prices, thus protecting themselves from a decline in the U.S. dollar.
ConocoPhillips (COP): Cramer recommended ConocoPhillips twice this month. He recommended investors buy the company on June 14 and June 20. Hedge fund managers also love ConocoPhillips. There were 36 hedge funds with ConocoPhillips in their 13F portfolios at the end of March. Billionaire Warren Buffett was the most bullish hedge fund manager about ConocoPhillips (check out Warren Buffett's top stock picks). As of March 31, 2012, Berkshire Hathaway had $2.2 billion invested in this position. Jean-Marie Eveillard, Bill Miller, Ken Griffin, and Cliff Asness were also in favor of ConocoPhillips.
ConocoPhillips restructured its portfolio earlier this year by spinning off its downstream assets into Phillips 66 (PSX). Since the beginning of May, ConocoPhillips has been trading as a standalone exploration and production company. The spinoff is a part of the company's three-year repositioning plan. The company also sold $12 billion of its non-core assets and the $9.5 billion of its interest in Lukoil. We think this restructuring will enable ConocoPhillips to better focus on its core business of exploration and production.
The cash flows generated from the sale of its non-core assets have also benefited the company. ConocoPhillips used the proceeds to pay back around $6 billion of its debt. It has also bought back $11.1 billion worth of its stocks in 2011. In 2012, the company plans to repurchase up to $10 billion worth of stocks, which will further boost its EPS. In addition to share repurchase, ConocoPhillips also increased its quarterly dividend to $0.66 per share in 2011. Its current dividend yield is high at 5%.
Devon Energy Corporation (DVN): Cramer also recommended Devon twice over the past month. He recommended buying the company on his show on both June 13 and June 15. As of June 22, 2012, Cramer owns 1,600 shares of Devon, which are worth about $88,700, in his charitable trust. Devon is also one of the more popular energy stocks amongst the hedge funds. Famous oil man T. Boone Pickens' BP Capital had $14 million invested in Devon (check out T. Boone Pickens' top stock picks). Andrew Hall, another money manager with expertise in the energy sector, is also bullish about Devon. His Astenbeck Capital Management also reported owning $13 million worth of Devon stocks at the end of the first quarter.
Devon has strong margins. Its current gross margin is 62.3% and its net profit margin is 15.7%. We believe the company's margins will remain at high levels as the company has been investing the proceeds from its asset divestiture into its high-return North American onshore portfolio. In 2012, Devon estimated its capital expenditure for onshore properties in North America to be $5.1 billion to $5.5 billion. The company is also trading at low multiples. Its EPS is expected to be $5.05 this year and $6.56 next year. Moreover, Devon's 2013 P/E ratio is only 8.5, versus the industry average of 11.5. It has a dividend yield of 1.47%
Other Recommendations: Cramer also recommended MarkWest Energy Partners (MWE) twice this month. He made the recommendations on June 1 and June 18. The stock has an attractive dividend yield of 6.37%. It has also demonstrated strong EPS improvements over the past few years. It earned $0.80 per share last year, versus $0.01 per share in the prior year. This year, the market expects the company to make $1.88 per share. However, its P/E ratio of 25 is relatively high compared with the industry average of 15. For growth investors, MarkWest might be a good choice for short-term, but we do not recommend this stock for long-term investors.