Billionaire Jorge Paulo Lemann’s New Energy Bets

Brazil’s leading investment firm 3G Capital recently submitted its 13F filing with the Securities and Exchange Commission, revealing a US equity portfolio worth $1.66 billion, as of December 31. The firm was founded by billionaire Jorge Paulo Lemann in 2004 and over the past few years has become famous for being a part of some of the largest M&A deals in the US. Our analysis on 3G Capital’s 13F holdings in companies worth over $1 billion shows that the 39 long positions held by the fund in 2015 delivered a weighted average loss of 6.7% for the year. To perform better in 2016, its latest 13F filing reveals that the fund geared up in a major way during the final quarter of 2015. According to the filing, 3G Capital’s US equity portfolio had a turnover of 112.50% during the fourth quarter and it made a notable increase in its exposure to the energy sector during that period. At the end of December, energy stocks alone amassed over one-third of the value of the firm’s US equity portfolio. Since 3G was betting big on a turnaround in the sector going into 2016, in this post we will focus on the five largest equity stakes it initiated in the sector during the fourth quarter.

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#5 Cimarex Energy Co (NYSE:XEC)

– Shares Owned by 3G Capital (as of December 31): 300,000

– Value of Holding (as of December 31): $26.81 Million

Though shares of Cimarex Energy Co (NYSE:XEC) fell in December, they have been fairly resilient to the slump in the broader market this year, trading down 3.5% year-to-date. On February 17, the company reported its fourth quarter earnings, declaring a loss of $0.25 per share on revenue of $311.30 million versus the analysts’ projection of a per share loss of $0.21 on revenue of $340.60 million. For the same quarter of the previous financial year, the company had reported EPS of $0.87 on revenue of $538.55 million. On February 23, the company declared a dividend of $0.08 per share, decreasing it by 50% from the $0.16 per share dividend it has been paying for the past six quarters. Billionaire Israel Englander‘s Millennium Management reduced its stake in Cimarex Energy Co (NYSE:XEC) by 56% to 674,207 shares during the fourth quarter.

#4 EQT Corporation (NYSE:EQT)

– Shares Owned by 3G Capital (as of December 31): 750,000

– Value of Holding (as of December 31): $39.1 Million

The fall in natural gas prices weighed heavily on EQT Corporation (NYSE:EQT)’s stock last year. However, this year the stock has bounced back and is trading with year-to-date gains of 6.5%. On February 19, EQT Corporation (NYSE:EQT) announced a public offering of 6.5 million shares with options to purchase an additional 975,000 shares. In its offering, the company mentioned that it might use the proceeds from this offering to repay some of its debt. On February 23, analysts at Deutsche Bank reiterated their ‘Buy’ rating on the stock, but lowered their price target on it to $74 from $76. Investing legend billionaire George Soros‘ Soros Fund Management made a more than fourteen-fold increase to his stake in EQT Corporation to 1.45 million shares during the October-December period.

#3 Diamondback Energy Inc (NASDAQ:FANG)

– Shares Owned by 3G Capital (as of December 31): 800,000

– Value of Holding (as of December 31): $53.52 Million

In the wake of a collapse in oil and natural gas prices, Diamondback Energy Inc (NASDAQ:FANG) has emerged as one of the most resilient stocks in the industry. While most energy stocks have plummeted heavily during the past few quarters, shares of Diamondback Energy Inc (NASDAQ:FANG) have been trading in the $60 -$80 range for the past two years and are currently trading up by over 2% year-to-date. The company managed to beat earnings expectations recently when it posted its fourth quarter numbers. While analysts had expected EPS of $0.44 on revenue of $135.19 million, it delivered EPS of $0.58 on revenue of $114.30 million. Of the 34 prominent analysts who cover the stock, 27 currently have a ‘Buy’ rating on it. Moreover, those 34 analysts have an average price target of $81.03 on the stock. Dmitry Balyasny‘s Balyasny Asset Management also initiated a stake in the company during the fourth quarter by purchasing 291,500 shares.

#2 Suncor Energy Inc. (USA) (NYSE:SU)

– Shares Owned by 3G Capital (as of December 31): 3 Million

– Value of Holding (as of December 31): $77.4 Million

Suncor Energy Inc. (USA) (NYSE:SU) was 3G Capital’s fourth-largest equity position at the end of the fourth quarter. Though shares of the company have declined by over 24% in the past one year, it has helped in raising its annual dividend yield to 3.62% currently. Last month, the company announced that it will be acquiring Canadian Oil Sands in a $4.2 billion deal. After the completion of this deal, Suncor Energy Inc. (USA) (NYSE:SU) will have a majority stake in two of the three largest mining projects currently in operation at Athabasca oil sands. Interestingly, on February 18, Canadian Oil Sands became the first major Canadian oil producer in at least a decade to receive a junk credit rating from Moody’s. On February 12, analysts at Citigroup upgraded Suncor Energy’s stock to ‘Buy’ from ‘Neutral’. Cliff Asness‘ AQR Capital Management reduced its stake in the company by 28% to 3.15 million shares during the October-December period.

#1 Exxon Mobil Corporation (NYSE:XOM)

– Shares Owned by 3G Capital (as of December 31): 1 Million

– Value of Holding (as of December 31): $77.95 Million

Energy behemoth Exxon Mobil Corporation (NYSE:XOM) represented 3G Capital’s largest new stake and its third largest equity position overall at the end of December. Shares of the company are currently trading in the green for 2016 due to better-than-expected fourth quarter numbers it reported earlier this month. On February 19, the company revealed that it added 1 billion barrels oil equivalent (boe) of proven oil and gas reserves in 2015, which will be able to replace only 67% of its production. This was the first time in last 22 years that the company couldn’t replace all of the oil and gas it pumped with acquisitions and discoveries. Some analysts believe that due to the aggressive pace at which the company bought back its shares in the last five years, it can slash its dividend in the future if the oil prices continue to be where they are now. On February 23, Roger Read, energy analyst at Wells Fargo, named Exxon Mobil Corporation (NYSE:XOM) among his top picks in the E&P sector and raised his valuation range for the stock to $89-$98.

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