In this article, via an analysis (based on the latest available institutional 13-F filings) of the investing activities of these world's largest fund managers managing between $100 billion and over a trillion dollars, we identify the mid-cap oil and gas exploration and production companies that are being accumulated and those being distributed by these mega managers. These mega funds, such as Fidelity Investments, Goldman Sachs, and Vanguard Group, together control almost a third of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets.
Most of the information is based on the latest available Q3 filings, but when Q4 filings are available, as in the case of a few of the 30 to 40 mega funds that have filed Q4's to-date, (including Vanguard Group, Bank of New York Mellon, Eaton Vance, and MFS Investment Management, that we have recently analyzed), we have instead used the more recent Q4 data for those funds. Taken together, these mega managers are bullish on the group, adding $1.01 billion to their $14.61 billion prior quarter position.
The following are the mid-cap oil & gas exploration & production companies that these mega fund managers are most bullish about, that are also trading at a discount to their peers (see Table):
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. Mega funds added $120 million in Q4 to their $474 million prior quarter position, and together they hold 26.0% of outstanding shares, greater than their 22.8% weighting in the group. The largest buyers being Fidelity Investments ($22 million) and Vanguard Group ($21 million), and Fidelity Investments with $147 million was also the largest holder. KOG shares have rallied strongly, having almost tripled from the $3.50s lows in early October to the highs above $10 at the end of last year. However, its shares still trade at a discount 9 forward P/E and 3.7 P/B compared to averages of 20.8 and 5.2 for its peers in the U.S. oil & gas exploration & production group, while earnings are projected to explode from 2c in 2010 to a projected 21c in 2011 and 98c in 2012.
EXCO Resources Inc. (NYSE:XCO): XCO is an independent oil and natural gas company, engaged in the exploration, exploitation, development and production of onshore North American oil and natural gas properties with a focus on shale resource plays. Mega funds added a net $76 million to its $163 million prior quarter position, with the largest buyers being Fidelity Investments ($46 million) and BNY Mellon ($41 million). XCO shares are near 52-week lows, down by about 70% in the past year, and it trades at a discount 15 forward P/E and 0.9 P/B compared to the averages of 20.8 and 5.2 for its peers in the U.S. oil & gas exploration & production group, while earnings are projected to fall from the current 57c on TTM basis to a projected 47c in 2013.
Enerplus Corp. (NYSE:ERF): ERF is an independent oil & gas producer, with property interests located in western Canada, as well as in the U.S. in MT, ND, PA, MD and DE. Mega funds added a net $29 million to its $211 million prior quarter position, with the largest buyers being Royal Bank of Canada ($20 million) and Wellington Capital Management ($9 million), and the largest holder being the Royal Bank of Canada ($86 million). ERF trades at a current 8.9 P/E on a TTM basis, and at 1.2 P/B, compared to averages of 20.6 and 1.8 for its peers in the Canadian oil & gas exploration & production group, while earnings are projected to fall from $2.43 in 2011 to $1.44 in 2012.
The following are mid-cap oil & gas exploration & production picks that mega funds are bullish about, but that are not trading at discounts compared to their peers (see Table):
- Sandridge Energy Inc. (NYSE:SD), an OK-based independent oil and natural gas company, in which mega funds added a net $210 million to their $517 million prior quarter position;
- EV Energy Partners (NASDAQ:EVEP-OLD), a MLP engaged in the acquisition, development and production of oil & natural gas properties in the continental U.S., in which mega funds added a net $179 million to their $374 million prior quarter position;
- Quicksilver Resources (NYSE:KWK), a leader in the development and production of unconventional resources, including coal bed methane, shale gas, and tight sand gas in North America, in which mega funds added a net $7 million to their $190 million prior quarter position;
- Provident Energy Ltd. (PVX), a Calgary-based, open-ended energy trust that owns and manages oil & gas production businesses and a midstream services business, in which mega funds added a net $9 million to their $121 million prior quarter position; and
- Pengrowth Energy Corp. (PGH), a Canadian energy trust with crude oil and natural gas properties in Western Canadian Sedimentary Basin, and offshore along the east coast of Canada, in which mega funds added a net $21 million to their $208 million prior quarter position.
The following are the mid-cap oil & gas exploration & production companies that these mega fund managers are most bearish about (see Table):
- McMoRan Exploration Co. (NYSE:MMR), engaged in oil and natural gas exploration and production in offshore Gulf of Mexico and U.S. onshore Gulf Coast area, in which mega funds cut a net $8 million from their $396 million prior quarter position;
- Berry Petroleum Co. (NASDAQ:BRY), an independent energy company engaged in the exploration and production of crude oil and natural gas in CA, UT, TX and CO, in which mega funds cut a net $26 million from their $793 million prior quarter position;
- Oasis Petroleum Inc. (NYSE:OAS), an independent oil & gas exploration & production company with activities, mainly in the Williston Basin in MT and ND, in which mega funds cut a net $3 million from their $912 million prior quarter position; and
- Ultra Petroleum Corp. (NASDAQ:UPL), an independent, exploration and production company focused on developing its long life, tight-gas sand resource play in the Green River Basin in WY, in which mega funds cut a net $69 million from their $1.58 billion prior quarter position.
General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets.
The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors 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.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.