Sterling Q2 Returns for BP Capital’s Top Stocks

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).

BP CAPITAL

#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.

Follow Emerson Electric Co (NYSE:EMR)

#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.

Follow Forum Energy Technologies Inc. (NYSE:FET)

We’ll check out the second quarter returns of BP Capital’s top three stock picks on the next page.

#3 Superior Energy Services, Inc. (NYSE:SPN)

 – Shares Owned by BP Capital Management (as of March 31): 547,266

 – Value of Holding (as of March 31): $7.33 million

Moving on, the team at BP Capital should be patting itself on the back for having increased the fund’s stake in Superior Energy Services, Inc. (NYSE:SPN) by 33% during the first quarter, as shares of the energy service provider rose by 37.5% during the second quarter. In spite of registering solid gains this year, Superior Energy Services’ stock is still down by almost 55% over the last five years. However, a lot of analysts feel that if energy prices continue to rally through the rest of 2016, the stock can recoup a large amount of those losses. On July 15, analysts at Stephens reiterated their ‘Top Pick’ rating on the stock, while analysts at Imperial Capital upgraded the stock to ‘Outperform’ from ‘In-Line’ and also boosted their price target on it to $23 from $15. Another fund that boosted its stake in the company during the first quarter was billionaire Israel Englander‘s Millennium Management, which enlarged its holding by 107% to 2.42 million shares.

Follow Superior Energy Services Inc (NYSE:SPNX)

#2 RSP Permian Inc (NYSE:RSPP)

 – Shares Owned by BP Capital Management (as of March 31): 264,019

 – Value of Holding (as of March 31): $7.67 million

BP Capital initiated a stake in RSP Permian Inc (NYSE:RSPP) during the last quarter of 2015 and increased it by 18% during the January-to-March period. The oil and natural gas company focuses exclusively on the exploration and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin of West Texas. Earlier this year, shares of the company made their all-time low since being listed in January 2014, falling to $16.74. However, they bounced back quickly and are currently trading up by over 100% since then, partially thanks to 20.14% gains in second quarter. According to analysts, the stock could continue to perform well in the coming months as RSP Permian is among the lowest-cost exploration and production companies in the Permian and has the ability to produce strong cash flows if oil trades near or above the $50 level. With ownership of 3.5 million shares of the company, John Labanowski‘s Brenham Capital Management was the largest shareholder of RSP Permian Inc (NYSE:RSPP) in our database at the end of the first quarter.

#1 WPX Energy Inc (NYSE:WPX)

 – Shares Owned by BP Capital Management (as of March 31): 1.13 million

 – Value of Holding (as of March 31): $7.89 million

WPX Energy Inc (NYSE:WPX) was another company in which BP Capital increased its stake by 33% during the first quarter. It was also the fund’s top stock pick at the end of March. Fortuitously for the fund, it’s also the stock that has appreciated the most in 2016 out of the five top picks covered in this article, gaining 91.47%, with 33.19% of those gains coming during the second quarter. Despite such terrific gains in such a short span of time, most analysts believe that the stock will continue to outperform in the coming months. The 27 leading analysts and research firms who track WPX Energy Inc (NYSE:WPX)’s stock currently have an average rating of ‘Overweight’ and an average price target of $12.28 on it, which represents potential upside of 24%. Last month, the company announced a secondary public offering of 45 million shares with an underwriters option to purchase up to an additional 6.75 million shares in the 30-days following the commencement of the offering. WPX Energy intends to use the proceeds from this offering for general corporate purposes, which may include “an acceleration of drilling and completion activities, bolt-on acreage acquisition, and midstream infrastructure in the Delaware Basin.” WPX Energy was held by 30 of the funds in our database as of March 31, which owned 19.30% of its shares in aggregate.

Follow Wpx Energy Inc. (NYSE:WPX)

Disclosure: None