T. Boone Pickens became a billionaire through his operations in oil, and now manages a fund which primarily invests in energy. The long stock picks of BP Capital are reported in 13F filings six to seven weeks after the end of each quarter, and recently it filed the 13F for the third quarter of 2012. We have been going through these documents at various funds and picking out specific stocks and broader investment decisions that we think investors might fund interesting. Read on for our evaluation of some of Pickens’s investment themes and compare his activity to previous filings.
Halliburton. Pickens hadn’t owned any shares of Halliburton Company (NYSE:HAL) at the end of June, but had initiated a position of about 150,000 shares by the end of the third quarter. The equipment and services company looks cheap to us at 10 times earnings (on either a trailing or a forward basis) with the sell-side expecting enough growth over the next several years to generate a five-year PEG ratio of 0.6. The business has been struggling a bit, but when we had looked at its larger peer Schlumberger we had come to the conclusion that Halliburton was a better value play. Read more about why we think that Halliburton is a better buy than Schlumberger.
Valero. For the third quarter in a row, Pickens increased his stake in Valero Energy Corporation (NYSE:VLO) and it is now the largest position in his 13F portfolio. Valero is a refining and marketing company- little drilling exposure here- which produces gasoline, ethanol, and other fuels and compounds. At a market capitalization of over $16 billion, it trades at 15 times trailing earnings but Wall Street analysts expect strong growth in 2013 and so the forward P/E is only 6. Fellow billionaire Israel Englander’s Millennium Management had owned the stock during the second quarter of the year. However, earnings have been slipping and the company is therefore dependent on seeing a strong reversal in its business prospects.
Less drilling. Pickens cut his stake in Transocean LTD (NYSE:RIG), an offshore contract driller, in half; he also sold about half his shares of independent integrated oil company Mcmoran Exploration Co (NYSE:MMR); he sold out of oil major EnCana Corporation (NYSE:ECA), which had been one of his top ten holdings. It’s possible that he decided against these names in particular, but coupled with the addition to Valero our interpretation is that Pickens and his team are trying to move their dollars further downstream. Transocean actually seems to be in a decent place- its revenue was up in the third quarter from a year earlier, and the forward P/E of 9 suggests that analysts consider it a good value- so perhaps investors should be looking at that as a potential long. We’re more sour on the other two oil companies: sales at each were down over 30% during the same time frame. McMoRan is widely shorted, with 22% of the outstanding shares held short as of the most recent data, and traders might look to join that side of the market as the sell-side doesn’t expect it to be profitable this year or next year. Encana also looks high priced, at 28 times consensus earnings for 2013, though it has a high dividend yield. We think that we’d avoid it.
We’d note that supermajors Exxon Mobil, BP, and Chevron are absent from Pickens’ 13F entirely; it’s possible that this ties in to a negative attitude towards drilling. We’ve mentioned that we think that investors should be taking a look at Halliburton if they want to buy a good long-term energy stock. Valero would require considerably more review; certainly if it hits analyst targets it will prove undervalued at the current price, but that would require much better performance than what the company has done recently.