The fund’s top energy stock pick was Cabot Oil & Gas Corporation (NYSE:COG), with a position of 1.8 million shares at the end of the quarter. Cabot is a $10 billion market cap independent oil and gas company with a focus on natural gas production in the United States. Fellow billionaire Dan Loeb’s Third Point reported a position of 1.8 million shares as well, though Third Point had been selling the stock during the quarter (check out Dan Loeb’s stock picks). The company reported double-digit growth rates in revenue and earnings in the third quarter versus a year earlier, but the current valuation already captures strong growth with a forward P/E of 36. We’re not sure that we would depend on Cabot to beat earnings expectations.
Chilton also liked Range Resources Corp. (NYSE:RRC), which like Cabot is most notably a producer of natural gas in the onshore U.S. It too is expensive in relation to its earnings: the stock trades at 60 times analyst consensus for 2013. While growth looks good, at least in terms of revenue, our impression is that as with Cabot it’s probably better to wait for natural gas prices to recover, allow the company to get some growth from there, and then see how the stock looks in terms of its value. At the moment we’re worried that it’s a bit speculative, even compared to companies like Chesapeake.
Chevron Corporation (NYSE:CVX), the large oil major, was another Chilton pick. Chevron trades at 9 times earnings, on either a trailing or a forward basis, and offers a dividend yield above 3% at current prices and dividend levels. However, the company’s business has not been doing well recently; last quarter revenue was down 10%, which contributed to a 33% decline in net income. Certainly all Chevron needs to do is preserve its current business and it would be well priced given its earnings multiple, but we think that we might prefer more stable oil majors like Exxon Mobil or BP.
The fund added shares of National-Oilwell Varco, Inc. (NYSE:NOV), an equipment and services company providing drilling rigs and other products. National Oilwell Varco looks very attractive in terms of its financials and valuation metrics: earnings were up 15% in its most recent quarter compared to the same period in 2011, with strong revenue growth as well, yet the trailing P/E is only 12. The sell-side expects growth to continue and so the stock trades at 10 times forward earnings estimates and a five-year PEG ratio of 0.7. We’d be interested in taking a closer look at the company.
Finally, Chilton increased its stake in Schlumberger Limited. (NYSE:SLB) by over 250% to about 1 million shares. Schlumberger had been on our list of the ten most popular energy stocks among hedge funds (see the full rankings) with 51 funds and other notable investors reporting a position in the large energy services company. At a market capitalization of $96 billion, Schlumberger carries a trailing P/E of 17; Wall Street analysts expect enough growth despite the company’s size that the five-year PEG ratio is 0.9. We’d be interested in comparing it to peer Halliburton, which trades at a discount and which was also a popular hedge fund pick but whose business has not been performing as well recently.
