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Charles Davidson and Joseph Jacobs

Wexford Capital is a Connecticut-based investment management firm that primarily invests in the energy sector. The firm was co-founded by Charles Davidson in 1994 and currently manages assets worth $2.7 billion. Nearly 60% of those assets or approximately $1.6 billion invested in the three hedge funds that Wexford runs – 1) Wexford Spectrum Fund; 2) Wexford Credit Opportunities Fund; and 3) Wexford Catalyst Fund.

According to Wexford Capital’s last 13F filing, its long US equity portfolio at the end of June was worth $575.34 million and comprised of 112 stocks. The filing also revealed that during the second quarter  the fund’s equity portfolio had a quarterly turnover of 73.21% and that its top-five energy holdings alone amassed 28.15% of the value of its equity portfolio at the end of that period. In this post, we will take a look at those five energy stocks and will analyze how they have performed this year.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

ETE

Charles Davidson And Joseph Jacobs
Charles Davidson And Joseph Jacobs
Wexford Capital

#5. Sunoco Logistics Partners L.P. (NYSE:SXL)

– Shares Owned by Wexford Capital (as of June 30): 470,048

– Value of The Holding (as of June  30): $13.51 Million

Wexford Capital upped its stake in Sunoco Logistics Partners L.P. (NYSE:SXL) by 78% during the second quarter, helping the company jump several spots in its portfolio and become its eighth largest holding overall at the end of that period. The Pennsylvania-based MLP lost almost 40% of its market capitalization last year, but has recouped some of those losses in 2016 and currently trades up by 14% year-to-date. It currently pays a quarterly distribution of $0.50 per share, which amounts to lucrative a forward yield of 6.87%. For its most recent quarter, Sunoco Logistics Partners L.P. (NYSE:SXL) reported EPS of $0.34 on revenue of $2.27 billion versus analysts’ expectation of EPS of $0.12 on revenue of $2.08 billion. The number of hedge funds covered by us that were long the stock inched down by one to 11 during the second quarter, but the aggregate value of their holdings in it during the same period jumped by 87.4% to $1.14 billion.

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#4. Parsley Energy Inc (NYSE:PE)

– Shares Owned by Wexford Capital (as of June 30): 749,680

– Value of The Holding (as of June  30): $20.28 Million

Having initiated its stake in Parsley Energy Inc (NYSE:PE) during the first quarter, Wexford Capital proceeded to boost it by 29% during the second quarter. Shares of the Texas-based independent oil and natural gas company have been on fire this year, appreciating by 70% so far in 2016. While several analysts think that such a strong rally has made the stock expensive at current levels, analysts at Morgan Stanley completely disagree with that view. At the end of last month, they released a note in which they named Parsley Energy Inc (NYSE:PE) as their top-pick in the mid-cap E&P sector, writing, “The consensus view is that Parsley Energy has materially outperformed and is now expensive, and that its superior growth is reflected in the stock. We disagree and would be buyers here.” Apart from naming the company as their top-pick, the analysts also reiterated their ‘Outperform’ rating on the stock and hiked their price target on it to $48 from $44, which represents a potential upside of 48.74%. The ownership of the company among funds covered by us rose by five to 41 during the second quarter, while the aggregate value of their holdings in it increased by $230.6 million to $950.82 million.

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#3. Energy Transfer Partners LP (NYSE:ETP)

– Shares Owned by Wexford Capital (as of June 30): 774,938

– Value of The Holding (as of June  30): $29.50 Million

Moving on to Wexford Capital’s third largest equity holding, Energy Transfer Partners LP (NYSE:ETP). During the second quarter, the fund increased its position in the company by 11%. Other hedge funds that also upped their stakes in the company during that time included James Dondero‘s Highland Capital Management and Dmitry Balyasny‘s Balyasny Asset Management. Though Energy Transfer Partners LP (NYSE:ETP)’s stock has appreciated by over 12% year-to-date, it hasn’t reduced the attractiveness of the MLP’s forward yield, which currently stands at 11.02%. Earlier this month, after the U.S.  Justice Department blocked the company’s North Dakota pipeline project, Energy Transfer Partners sent a letter to its employees in which Chairman and CEO, Kelcy Warren, stated that the company remains committed to building up the pipeline. On August 15, analysts at Morgan Stanley initiated coverage on Energy Transfer Partners’ stock with a ‘Equal-Weight’ rating and $48 price target. The company saw a minor increase in its popularity during the second quarter among hedge funds covered by us with its ownership among them rising by 10% to 22 and the aggregate value of their holdings in it moving up by $11 million to $833.77 million.

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#2. EnLink Midstream Partners LP (NYSE:ENLK)

– Shares Owned by Wexford Capital (as of June 30): 2.77 Million

– Value of The Holding (as of June  30): $46.08 Million

Amid a 38.25% rise in EnLink Midstream Partners LP (NYSE:ENLK)’s stock during the second quarter, Wexford Capital hiked its stake in the company by 28%. Like the stocks of other MLPs discussed previously, EnLink Midstream Partners LP (NYSE:ENLK)’s stock also sports an attractive annual dividend yield of 8.93% and it has gained 6% so far this year. The rally in natural gas prices has helped in improving the outlook for the stock in the last few months, however, most analysts still have a neutral view on it owing to the several headwinds the company faces. For its fiscal 2016 third quarter, analysts are expecting the MLP to report EPS of $0.02 on revenue of $1.1 billion. In comparison, EnLink Midstream Partners reported a per share loss of $2.32 on revenue of $1.17 billion for the same quarter in the previous year. On September 13, analysts at Credit Suisse Group AG downgraded the stock to ‘Neutral’ from ‘Outperform’ while keeping their price target on it unchanged at $21. At the end of June, there were seven hedge funds covered by us that were long EnLink Midstream Partners with the aggregate value of their holdings in it amounting to $159.78 million.

#1. Enterprise Products Partners L.P. (NYSE:EPD)

– Shares Owned by Wexford Capital (as of June 30): 1.79 Million

– Value of The Holding (as of June  30): $52.55 Million

With Wexford Capital boosting its stake in the company by 32% during the second quarter, Enterprise Products Partners L.P. (NYSE:EPD) continued to remain the largest equity holding of the fund at the end of that period. The downward journey that Enterprise Products Partners L.P. (NYSE:EPD)’s stock started in September 2014 seems to have ended this year as it currently trades up 11.08% year-to-date. Enterprise Products Partners currently pays a quarterly distribution of $0.40 per share, which translates into a forward yield of 5.78%. Earlier this month, the MLP announced that it has withdrawn its takeover offer for rival, Williams Companies, Inc. citing lack of engagement as the reason. In August, Enterprise Products Partners had made a second, all-stock offer for Williams Companies, Inc., which was rejected by the latter. On Monday, analysts at Credit Suisse Group AG upgraded EPD’s stock to ‘Outperform’ from ‘Neutral’ and reiterated their $34 price target on it. Though the number of hedge funds covered by us that were long the stock increased only by one to 22 during the April-June period, the aggregate value of their holdings in it shot up by over 60% to $$441.02 million during that time.

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Disclosure: None

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