Russell Lucas‘ Red Bank, New Jersey-based Lucas Capital Management is focused on investments in the energy sector. Deducing from the fund’s latest filing, the sector represented about 43% of the value of its equity portfolio, though this was down slightly from 47% at the end of December. Although the energy sector is up by some 12.8% so far this year, it has been an extremely rocky and highly volatile ride. Let’s take a look at how Russell Lucas has geared his fund’s portfolio to ride the recovery in energy prices in the current quarter and beyond.
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#5 Pioneer Natural Resources (NYSE:PXD)
– Shares Owned by Lucas Capital (as of March 31): 16,700
– Value of Holding (as of March 31): $2.36 Million
The $27.21 billion oil and gas exploration and production company might seem to have lost some of Mr. Lucas’ confidence, as he slashed his fund’s stake in the company by 24% during the first trimester. However, considering that Pioneer Natural Resources’s stock price is up by a whooping 32% so far this year, the move might very well have been one of profit-taking. Despite first quarter revenue coming in lighter-than-expectations, a number of analysts including Stigel, Topica Capital Markets, Wunderlich, and RBC Capital Markets appeared to be upbeat about the company’s bottom-line beat and raised their price targets on the stock. With 9.37 million shares valued at $1.17 billion, Andreas Halvorsen‘s Viking Global was the largest stockholder of Pioneer Natural Resources within our database at the end of last year.
#4 Exxon Mobil Corporation (NYSE:XOM)
– Shares Owned by Lucas Capital (as of March 31): 35,000
– Value of Holding (as of March 31): $2.92 Million
Lucas Capital’s Exxon Mobil Corporation holding remained largely unchanged during the January-to-March period and represented 2.13% of the value of the fund’s portfolio. Although trading nearly sideways over the last 12 months, the $371 billion energy company’s stock has appreciated by 14.2% year-to-date alongside the broader rebound in the industry. A loss in the upstream segment and a decline in earnings from the downstream segment on a year-over-year basis wasn’t enough to hold the company back from beating both the top and bottom-line estimates for its first quarter financial results, thanks to a rise in Exxon Mobil Corporation’s earnings from the chemical segment. Ken Fisher‘s Fisher Asset Management reduced its Exxon holding by 16% to 4.54 million shares during the first quarter.
We power through the top three energy stock picks of Lucas Capital on the next page.
#3 Western Gas Equity Partners LP (NYSE:WGP)
– Shares Owned by Lucas Capital (as of March 31): 82,400
– Value of Holding (as of March 31): $2.94 Million
Lucas Capital cut its stake in the high-yield MLP by 9% during the March quarter. Western Gas Equity Partners LP closed its $750 million acquisition of Springfield Pipeline LLC from Anadarko Petroleum Corporation (NYSE:APC) in mid-March. Western Gas Equity Partners’ stock has rallied by a little over 10% so far this year. Stuart J. Zimmer‘s Zimmer Partners was bullish on Western Gas Equity Partners LP in the fourth trimester as it raised its stake by 61% to about 420,500 shares.
#2 EOG Resources Inc (NYSE:EOG)
– Shares Owned by Lucas Capital (as of March 31): 42,400
– Value of Holding (as of March 31): $3.07 Million
The $46 billion oil & gas exploration and production company has seen its stock rise by almost 17% on a year-to-date basis. Lucas Capital appears to have taken some money off the table in this case as well, slashing its holding by 27% during the March quarter. Nonetheless, the holding is still the fund’s second-largest among energy stocks and it has held a stake in EOG Resources Inc since the first quarter of 2012. Shares are up by about 48% since then. Deutsche Bank recently downgraded the company to ‘Hold’ from ‘Buy’ and revised its price target to $83 from $85 on valuation concerns. EOG’s significant outperformance in the sector accompanied by aggressive multiple expansion (6.2x premium on 2016 EV/DACF) as compared to its peers limits the upside potential of the stock going forward. Selz Capital, which is led by Bernard Selz, held 40,000 shares of EOG Resources Inc valued at $2.9 million at the end of March.
#1 Magellan Midstream Partners, L.P. (NYSE:MMP)
– Shares Owned by Lucas Capital (as of March 31): 45,391
– Value of Holding (as of March 31): $3.12 Million
Lucas Capital’s largest equity investment in the energy sector represented 2.28% of its portfolio at the end of the first trimester, after the fund trimmed its holding by 3% during the quarter. Magellan Midstream Partners, L.P. recently increased its dividend by 12% to lift its yield to 4.47%. Along with TransMontaigne Partners L.P. (NYSE:TLP), the energy pipeline and storage company has been assessing the development of a new refined products pipeline in South Texas, which could have an approximate length of 150 miles with a 16-inch diameter. Osterweis Capital Management, which is led by John Osterweis, was the largest stockholder of Magellan Midstream Partners, L.P. among the funds that we track as of December 31, holding more than 571,400 shares.
