Billionaire Richard Chilton’s Top Energy Stock Picks

Richard Chilton founded Chilton Investment Company in 1992. The successful hedge fund has nearly $8 billion in assets under management. Recently, Chilton released his latest holdings in a 13F filing. About half of his portfolio is invested in the basic material sector. We like basic material stocks too. Most of them, especially energy stocks, are trading at low multiples. In this article, we are going to take a closer look at Chilton’s most bullish energy bets and decide whether it makes sense for investors to imitate these stock picks.

CHILTON INVESTMENT COMPANY

Chevron Corp (CVX) is the largest position in Chilton’s 13F portfolio at the end of last year. Chilton had $134 million invested in this position. CVX is very popular among hedge funds tracked by us. At the end of last year, there were 38 hedge funds with CVX positions in their 13F portfolios. Billionaire Jim Simons’ Renaissance Technologies also significantly boosted its position in CVX by nearly 500% over the fourth quarter. RenTech reported owning $108 million worth of CVX shares at the end of 2011.

Chevron’s output in the first three quarters of last year went down by 2.5% largely due to the Thailand pipeline incident. That partly explains why CVX is currently trading at low multiples. Its P/E ratio is only 8.16, versus 19.24 for the average of its industry. CVX is expected to make about $12.80 in 2012 and its forward P/E ratio is also less than 9, versus 12.43 for its industry. It is also expected to make $13.17 next year but of course these estimates are highly dependent on the fluctuations in oil prices. The stock has a decent dividend yield of 2.96% and its payout ratio is only 23%, which means that the company is able to raise its dividend payouts even if its earnings do not grow as fast as expected. Therefore, CVX is a good option for dividend growth investors. CVX has been restructuring its business. It is shifting from downstream business to large upstream projects which have higher margin potential.

The main competitors of CVX include BP Plc (BP), ConocoPhillips (COP) and Exxon Mobile Corp (XOM). We have a long position in COP and we are considering a long position in BP mainly because of its relatively higher dividend yield and low PE ratio. BP’s forward PE ratio is 7 vs. 9.7 for XOM. We don’t think XOM deserves such a high premium over BP.

EOG Resources Inc (EOG): Chilton also invested over $100 million in EOG, a company that is engaged in exploration and production of oil and natural gas. As of December 31, 2011, there were 32 hedge funds reported to own EOG in their 13F portfolios. Ken Griffin was the most bullish hedge fund manager about EOG. His Citadel Investment Group had over $200 million invested in EOG at the end of last year. Ric Dillon’s Diamond Hill Capital also had $165 million invested in this stock.

We are not considering a long position in EOG though. It looks a bit overvalued compared with its peers. Its current P/E ratio is 27.99, versus 19.24 for industry average. In 2012, EOG is expected to make about $4.89 per share, which means that its forward P/E ratio is 23, still higher than the industry average of 12.43. The main reason for the high valuation is EOG’s high growth. For the fourth quarter of 2011, the company’s revenues were up 55% compared to the same quarter a year ago, heavily beating its industry’s average growth rate of 23%. Its net income also increased by 125% from $53.67 million to $120.7 million. The high growth expectation has been reflected in its current stock price and that explains why it is trading at a premium. In 2013, the company is expected to earn $6.50 per share, up more than 30% from the expected EPS in 2012. As contrarian investors, we do not recommend investors to purchase EOG. It is relatively difficult for the company to beat the challenging growth expectations. We would rather purchase value stocks with stable businesses. For example, one of EOG’s competitors, Apache Corp (APA), has an expected grow rate of 6.6% but its P/E ratio is 9.25 and its forward P/E ratio is 8.7.EOG has to increase its earnings by more than 200% to have the same earnings yield as Apache.

A few other large energy positions in Chilton’s portfolio include Southwestern Energy Co (SWN) and Occidental Petroleum Corp (OXY). Both stocks were also among the top 10 positions in Chilton’s 13F portfolio. Chilton had $95 million invested in SWN and another $83 million invested in OXY. We like OXY but we are not very bullish about SWN. OXY has a relatively low P/E ratio of 12.79 and it is expected to grow at 11%, while SWN has a similar expected growth rate but is trading at a much higher P/E ratio of 18.34.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!