The turnaround in oil prices this year has helped several hedge funds generate strong returns so far in 2016. One of the major beneficiaries of this rally has been BP Capital Management, the hedge fund founded by oilman and legendary energy speculator T. Boone Pickens. Although BP Capital Management makes most of its bets in the futures and derivatives markets, it also manages a considerably large equity portfolio, which is comprised primarily of energy stocks.
According to the fund’s latest 13F filing, its U.S equity portfolio was worth $193.57 million at the end of March and more than 75% of its valued was held in stock from the energy sector. In this article, we’ll take a look at the top five stock picks of BP Capital Management as of the end of March and see how they performed during the second quarter.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Emerson Electric Co. (NYSE:EMR)
– Shares Owned by BP Capital Management (as of March 31): 118,973
– Value of Holding (as of March 31): $6.47 million
Let’s start with Emerson Electric Co. (NYSE:EMR), which was a new entrant to BP Capital’s equity portfolio during the first quarter. Although shares of the electrical services company suffered a loss of 4.08% in the second quarter, they are currently trading up over 4% since the end of the first quarter thanks to a strong July. Emerson Electric Co. (NYSE:EMR)’s stock currently sports an annual dividend yield of 3.37%, having been pushed down slightly thanks to its 16.24% gains this year. In April, the company announced that it intends to sell its Motors and Drives unit to focus its business on process automation, and heating and air conditioning. According to the latest reports, three bidders have shown interest in acquiring its Motors and Drives unit, which consists of its alternator manufacturing subsidiary, Leroy-Somer. Hedge funds that increased their stakes in Emerson Electric during the first quarter included Ray Carroll‘s Breton Hill Capital, which upped its stake in the company by 58% to 16,425 shares.
#4 Forum Energy Technologies Inc (NYSE:FET)
– Shares Owned by BP Capital Management (as of March 31): 497,576
– Value of Holding (as of March 31): $6.57 million
BP Capital increased its stake in oilfield products company Forum Energy Technologies Inc (NYSE:FET) by 20% during the first quarter. Shares of the company are currently trading up by 31.2% this year, with nearly all of those gains coming in the second quarter. The company is expected to report its second quarter results by the end of this month and analysts project it to report a loss of $0.22 per share on revenue of $142.26 million, which would be significantly below the EPS of $0.16 on revenue of $284.40 million that it pulled in a year earlier. On July 18, analysts at Credit Suisse upgraded Forum Energy Technologies Inc (NYSE:FET) to ‘Outperform’ from ‘Neutral’, while keeping their price target on it unchanged at $18. D E Shaw, founded by billionaire David E. Shaw , was one of the funds that lowered its stake in the company during the first quarter, by 5% to 336,233 shares.
We’ll check out the second quarter returns of BP Capital’s top three stock picks on the next page.