Prem Watsa Keeps Buying Up SandRidge

Page 1 of 2

It’s been a tough year for natural gas businesses. Chesapeake Energy Corporation (NYSE:CHK), for example, is down 29% since the beginning of 2012; natural gas prices have dropped, concerns over poor corporate governance arose last spring, and the company has had to plan to sell off some of its assets to raise cash. A similar controversy is currently playing out at SandRidge Energy Inc. (NYSE:SD), as TPG-Axon Capital Management has launched an activist campaign against the company’s CEO and has nominated a shadow Board of Directors. Mount Kellett Capital Management also owns a large stake in the company (find more stocks Mount Kellett owns) and has been dissatisfied with operations at SandRidge. This stock is down 23% since the start of the year.

Prem Watsa

Prem Watsa, a value investor known as “the Warren Buffett of Canada” for his management of holding company Fairfax Financial, however, thinks that everything’s fine at SandRidge. In November he called controversial CEO Tom Ward “one of the best operators in the business” in an interview with Bloomberg News. Now Fairfax- which is another major holder of SandRidge- has increased its stake further, buying about 5 million shares of the stock in late December for a total of about 30 million shares. According to our database of 13F filings, the holding company had only owned 4.4 million shares at the beginning of October (see Watsa’s other stock picks). The battle for control of SandRidge could get nasty.

In the third quarter of 2012, revenue was up 46% from the same period in 2011. However, a large loss on derivative contracts singlehandedly gave SandRidge Energy Inc. negative operating income. It looks to us that without that loss- and, logically, without the large gain on derivative contracts in Q3 2011- that operating income was up nicely from a year earlier despite disadvantageous changes in natural gas prices. Cash flow from operations was about $580 million in the first nine months of 2012; the company used $2 billion of cash in investing activities, primarily capital expenditures, but the cash hoard increased by nearly half a billion dollars as SandRidge managed to make large borrowings and issue royalty trust units.

Wall Street analysts expect SandRidge Energy Inc. to be unprofitable in 2013. We’ve noted the activities of Mount Kellett and TPG-Axon, who are bullish primarily because they believe management can be replaced, and a number of other traders seem to have gone to straight-up bearishness on the company as 18% of the outstanding shares are held short.

Page 1 of 2
Comments
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

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

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!