Assured Guaranty Ltd. (AGO), LinnCo LLC (LNCO): Billionaire Louis Bacon’s Small Cap Picks

Oasis Petroleum Inc. (NYSE:OAS), a $3.1 billion market cap oil and gas exploration and production company with a focus on North Dakota’s Bakken Shale, was another of Bacon’s small cap picks. The company grew its revenue by 83% in its most recent quarterly report compared to the fourth quarter of 2011. Wall Street analysts expect Oasis Petroleum Inc. (NYSE:OAS)’s earnings to grow rapidly, with the stock trading at 10 times forward earnings estimates and a five-year PEG ratio of 0.5. Billionaire Ken Griffin’s Citadel Investment Group increased its own holdings to 1.8 million shares during Q4 (find Griffin’s favorite stocks).

The fund was buying Newcastle Investment Corp. (NYSE:NCT), a real estate investment trust which invests in commercial mortgage backed securities and other real estate loans, and closed December with 2.1 million shares in its portfolio. Real estate investment trusts are required to distribute a large share of their taxable income to shareholders in order to maintain their preferable tax treatment, which often results in high yields. Newcastle Investment Corp. (NYSE:NCT)’s own dividend yield is about 8%, though we would note that is somewhat risky; the company suspended dividend payments during the financial crisis and payments are still lower than they were in summer 2008.

Bacon and his team had 1.7 million shares of Kodiak Oil & Gas Corp (USA) (NYSE:KOG) in their portfolio. Similarly to Oasis, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) is a small cap Bakken-focused oil and gas exploration and production company. The sell-side is bullish here as well: the trailing and forward P/E multiples are 16 and 8, respectively, and the five-year PEG ratio is 0.2. Revenue growth has been very strong, though we would note that 11% of the float is held short. Vinik Asset Management, managed by billionaire Jeffrey Vinik, bought 2.2 million shares during the fourth quarter of 2012 (see more stocks Vinik was buying).

Disclosure: I own no shares of any stocks mentioned in this article.