T. Boone Pickens isn’t a hedge fund manager, but the billionaire oilman invests considerable capital in energy stocks and reports his positions on quarterly 13F filings. These filings, like those for hedge funds and other major investors, disclose long equity positions in U.S. stocks as of the end of the quarter. By analyzing 13Fs it is possible to develop profitable investment strategies. For example, we have found that the most popular small cap stocks among hedge funds produce an excess return of 18 percentage points per year on average (read more about our small cap strategy). Retail investors can also dig into individual filings to see what stocks major market players were buying. We looked through Pickens’ filing (see the full list of his stock picks and compared it to the one from the end of September; here are his five largest new stock picks:
Marathon Oil Corporation (NYSE:MRO) was the largest new holding reported on the 13F with a position of over 180,000 shares. Marathon is a $23 billion market cap oil and gas company, which places its valuation at 15 times trailing earnings. Its net income fell 41% last quarter compared to the fourth quarter of 2011 despite a double-digit percentage increase in revenue, though analysts see earnings coming back in the next couple years. Billionaire Ken Griffin’s Citadel Investment Group more than doubled the size of its own position in Marathon last quarter to a total of 8.7 million shares (check out more stocks Griffin was buying).
Learn more about three other stocks Pickens was buying:
The 13F reported a new position of a little over 60,000 shares of oil major Occidental Petroleum Corporation (NYSE:OXY). Occidental made our list of the most popular energy stocks among hedge funds for the fourth quarter of 2012 (see more energy stocks hedge funds loved). It too has been impacted by lower margins, with earnings down sharply in Q4 from their levels in the same period in the previous year even though sales actually increased slightly. The stock carries trailing and forward P/E multiples of 14 and 10, respectively- this makes it at least as expensive as market leader Exxon Mobil Corporation (NYSE:XOM).
Weatherford International Ltd (NYSE:WFT), a $9.1 billion market cap oil and gas equipment and services company, was another of Pickens’ new stock picks. Because much of the demand for equipment is tied to drilling activity, Weatherford’s stock price is sensitive to market conditions with a beta of 2.2. However, it has fallen 28% against a rising market in the last year as earnings have tumbled. Consensus for 2013 places the current-year P/E at 12. Billionaire Jeffrey Vinik was also buying Weatherford shares between October and December (research more stocks Vinik owned).
One company which is moving into the oil business through a pair of related acquisitions is Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), and that stock was the fifth largest new holding for Pickens. The market has reacted quite negatively to the acquisition news- in addition to Freeport-McMoRan being treasured as a barometer of copper demand, the acquisitions came at large premiums to where the target companies had been trading. While we didn’t like the deal it’s possible the market has driven down the stock price to value levels. Billionaire John Paulson’s Paulson & Co. reported a large position in Freeport-McMoRan at the end of December (find more stocks Paulson was buying).
Disclosure: I own no shares of any stocks mentioned in this article.
