Billionaire T. Boone Pickens’s Long Term Picks: Occidental Petroleum Corporation (OXY), Apache Corporation (APA) & More

In May, billionaire T. Boone Pickens’s BP Capital filed its 13F for the first quarter of 2013 with the SEC, disclosing many of its long equity positions as of the end of March, including Occidental Petroleum Corporation (NYSE:OXY), Apache Corporation (NYSE:APA) and more. Obviously the information in this filing is somewhat old by now, but we at Insider Monkey track quarterly 13F filings from hundreds of hedge funds, including BP, as part of our work researching investment strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). This allows us to identify stocks which Pickens has owned for the long term on the theory that he is more likely to still own these names. Read on for our thoughts on the three largest positions the fund owned in its most recent 13F which it also had at least $10 million invested in at the end of March 2011 or see the full list of Pickens’s stock picks over time.

The billionaire and his investment team reported a position of about 125,000 shares in Apache Corporation (NYSE:APA). Apache increased its energy production, in terms of barrels of oil equivalent, by 2% in its last quarterly report compared to the first quarter of 2012. Even though the company shifted its production mix away from natural gas towards oil, natural gas and natural gas liquids still made up a majority of output.

T Boone PickensRecently, while oil prices have done well, natural gas prices in North America (the source of most of Apache’s production) have been low due to a number of factors including a glut in supply and a slowing in demand growth from utilities. As a result, revenue fell by 10% over this period and net income decreased at a similar rate. Over the long term, however, natural gas is thought of as a potential benefit as companies build out export infrastructure in the U.S. Apache is valued at only 9 times forward earnings estimates as Wall Street analysts expect an increase in earnings per share next year.

Pickens has been a long term owner of Devon Energy Corp (NYSE:DVN), another oil and gas exploration and production company which has been troubled recently by low natural gas prices. Devon’s 10-Q shows that it is even more focused on natural gas an NGLS than Apache is: oil (and Canadian bitumen) was responsible for only about a quarter of its energy production by energy equivalent in the first quarter of 2013.

Product sales were down 6% versus a year earlier, and pretax earnings were essentially zero after adding back asset impairment charges (though this was partly because the decline in the core financials was supplemented by a loss on commodity derivatives). Here there are potential growth opportunities not only in natural gas, but also in the Canadian bitumen operations (where production is up almost 20% from its levels a year ago). Analysts are forecasting $5.11 in earnings per share in 2014, which would represent 33% EPS growth from the adjusted figures expected for this year. That implies a forward earnings multiple of only 11, but seems quite optimistic.

Occidental Petroleum Corporation (NYSE:OXY) rounds out our list of Pickens’s long term stock picks with the most recent filing disclosing ownership of about 80,000 shares. Occidental Petroleum Corporation (NYSE:OXY) is a significantly larger company by market cap than Apache or Devon, at $73 billion, and has a more prominent midstream unit. As with the other companies discussed here, Occidental Petroleum Corporation (NYSE:OXY) has been experiencing at least temporary declines in both sales and net income. The sell-side is looking for earnings growth next year, and so the trailing and forward earnings multiples are 17 and 12 respectively. Billionaire David Shaw’s D.E. Shaw reported a position of 4.6 million shares in its own 13F (find D.E. Shaw’s favorite stocks).

Apache and Devon seem to be somewhat interesting ways to play improvements in the natural gas market; we’d guess that Pickens (who is known for his “Pickens Plan” to increase the role of natural gas as a transportation fuel) has been bullish on these companies for this reason. While the forward valuations are low these stocks would be risky investments, since they do depend on demand growing fast enough to outstrip supply in what has been a hotly developed resource.

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

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