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Energy Guru Wexford Capital’s Top Oil & Gas Picks

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Wexford Capital is a Connecticut-based investment management firm that primarily invests in the energy sector. The firm was co-founded by Charles Davidson in 1994 and currently manages assets worth $2.7 billion. Nearly 60% of those assets or approximately $1.6 billion invested in the three hedge funds that Wexford runs – 1) Wexford Spectrum Fund; 2) Wexford Credit Opportunities Fund; and 3) Wexford Catalyst Fund.

According to Wexford Capital’s last 13F filing, its long US equity portfolio at the end of June was worth $575.34 million and comprised of 112 stocks. The filing also revealed that during the second quarter  the fund’s equity portfolio had a quarterly turnover of 73.21% and that its top-five energy holdings alone amassed 28.15% of the value of its equity portfolio at the end of that period. In this post, we will take a look at those five energy stocks and will analyze how they have performed this year.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

ETE

Charles Davidson
Charles Davidson
Wexford Capital

#5. Sunoco Logistics Partners L.P. (NYSE:SXL)

– Shares Owned by Wexford Capital (as of June 30): 470,048

– Value of The Holding (as of June  30): $13.51 Million

Wexford Capital upped its stake in Sunoco Logistics Partners L.P. (NYSE:SXL) by 78% during the second quarter, helping the company jump several spots in its portfolio and become its eighth largest holding overall at the end of that period. The Pennsylvania-based MLP lost almost 40% of its market capitalization last year, but has recouped some of those losses in 2016 and currently trades up by 14% year-to-date. It currently pays a quarterly distribution of $0.50 per share, which amounts to lucrative a forward yield of 6.87%. For its most recent quarter, Sunoco Logistics Partners L.P. (NYSE:SXL) reported EPS of $0.34 on revenue of $2.27 billion versus analysts’ expectation of EPS of $0.12 on revenue of $2.08 billion. The number of hedge funds covered by us that were long the stock inched down by one to 11 during the second quarter, but the aggregate value of their holdings in it during the same period jumped by 87.4% to $1.14 billion.

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#4. Parsley Energy Inc (NYSE:PE)

– Shares Owned by Wexford Capital (as of June 30): 749,680

– Value of The Holding (as of June  30): $20.28 Million

Having initiated its stake in Parsley Energy Inc (NYSE:PE) during the first quarter, Wexford Capital proceeded to boost it by 29% during the second quarter. Shares of the Texas-based independent oil and natural gas company have been on fire this year, appreciating by 70% so far in 2016. While several analysts think that such a strong rally has made the stock expensive at current levels, analysts at Morgan Stanley completely disagree with that view. At the end of last month, they released a note in which they named Parsley Energy Inc (NYSE:PE) as their top-pick in the mid-cap E&P sector, writing, “The consensus view is that Parsley Energy has materially outperformed and is now expensive, and that its superior growth is reflected in the stock. We disagree and would be buyers here.” Apart from naming the company as their top-pick, the analysts also reiterated their ‘Outperform’ rating on the stock and hiked their price target on it to $48 from $44, which represents a potential upside of 48.74%. The ownership of the company among funds covered by us rose by five to 41 during the second quarter, while the aggregate value of their holdings in it increased by $230.6 million to $950.82 million.

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