Billionaire T. Boone Pickens runs a concentrated $35 million hedge fund called BP Capital, with nearly 45% of his fund invested in his top five stocks, all of which are energy of course. He isn’t your typical hedge fund manager, being a former oilman turned hedge fund manager; let’s check out his top five picks (see Pickens’ other top picks).
Pickens and BP Capital’s top pick is Pioneer Natural Resources (NYSE:PXD), which makes up 12.8% of BP’s portfolio after a 70% increase in shares owned during the first quarter. Pioneer is primarily a Texas oil and gas explorer, operating in the Permian Basin, Eagle Food Shale and Barnett Shale.
Pioneer Natural Resources (NYSE:PXD) posted 1Q results of $1.02, compared to $1.23 for the same period last year, yet, beating consensus by $0.03. One of the other big positives is that long-term debt fell by 19%. Pioneer expects to see increased drilling at the Permian Basin and Eagle Ford Shale drive production up 12% to 16% in 2013, and at a 13% to 18% compounded annual growth rate through 2015. This solid production growth expectations has gotten the attention of analysts, whose consensus five-year expected EPS growth rate is 17% per annum.
A new addition to BP’s portfolio and now its second latest stock holdings, making up 9.5% of its portfolio, is Apache Corporation (NYSE:APA), a large independent exploration and production company. A positive for the company is its focus on being liquids rich, with liquids accounting for some 82% of revenues. The strong pricing performance of oil, relative to gas, makes Apache’s oil/gas mix a positive.
After missing first quarter EPS estimates, Apache is looking to sell some $4 billion in assets to reduce debt and complete a 30 million share repurchase (7.5% of outstanding shares). Apache Corporation (NYSE:APA) has a 2013 CapEx plan of $10.5 billion set, with a focus on the active Permian basin. Apache trades at a trailing P/E of 18, but its forward P/E is only 9, suggesting the market is not fully appreciating the company’s potential for growth.
As far as hedge fund interest, going into the second quarter there were a total of 41 hedge funds long the stock, which was a 17% increase form the first quarter. Boykin Curry’s Eagle Capital Management has the largest position in Apache Corporation (NYSE:APA), worth close to $386 million and accounting for 2.3% of its total 13F portfolio (see Eagle Capital’s portfolio).
Coming in third and making up 9.3% of BP’s portfolio, after a 580% increase in shares owned during 1Q, is Goodrich Petroleum Corporation (NYSE:GDP). This independent oil and gas company explores for and produces oil and natural gas in Texas and Louisiana.
Production did fall some 22% in 2012, as the company slowed natural gas activity at Haynesville Shale. Goodrich Petroleum Corporation (NYSE:GDP) now appears to be shifting more toward oil production and is expected to move to an oil mix of 31% in 2013 from only 15% in 2012. This will be driven by a focus on drilling at its liquid-rich Eagle Ford Shale.
The company expects 2013 oil production to be up 40%-60%, but analysts don’t seem to be too impressed. The consensus estimates put five-year EPS growth rate at an annualized 5%. Keep in mind that the oil and gas company has managed to underperform the S&P 500 by 30 percentage points over the past twelve months.
In fourth is Devon Energy Corp (NYSE:DVN), which makes up 6.8% of Pickens’ portfolio. Devon Energy is one of the largest independent oil and gas exploration and production companies in the U.S., seeing production up 5% in 2012.
Devon Energy Corp (NYSE:DVN) posted first quarter EPS of a mere $0.66, well below the $1.05 from the same quarter last year and missing consensus by some $0.18. However, oil production was up 14% and putting its liquids mix to 41%.