T. Boone Pickens and Andrew Hall’s Favorite Energy Stocks

We are long-term bullish about energy stocks. Even though energy prices are cyclical, went into bubble territory in 2008, lost nearly 75% of their value after topping, they are still in a long-term bull market. Just five years ago investors were shocked when a Goldman Sachs analyst predicted $100 oil. Oil prices are above $100 in today’s fragile economy. High oil prices are here to stay. One of the practical ways of picking energy stocks is taking a look at what guru hedge fund managers are buying. In this article we will focus on the stock picks of T. Boone Pickens and Andrew Hall. Both fund managers recently disclosed their end of 2011 holdings to the SEC.


Let’s check out the stocks that both T. Boone Pickens and Andrew Hall are bullish about.

Schlumberger Limited (SLB): At the end of last year, Pickens had $3.5 million invested in SLB and Hall had $33.4 million invested in this stock. They owned about $37 million worth of SLB shares in total. SLB is also very popular among other hedge funds. There were 42 hedge funds with SLB positions at the end of the third quarter. Billionaire Ken Fisher was the most bullish fund manager about SLB. Fisher Asset Management had over $500 million invested in SLB.

We think SLB will benefit a lot from the growing exploration activities all over the world in the next few years. We also see solid growth in revenue and earnings, as well as strong cash flows from operations. For the three months ending December 31, 2011, SLB reported net income of $1.4 billion, or $1.05 per share, up from $1.0 billion, or $0.76 per share for the same period in 2010. Revenue also increased by 22% to $11 billion, compared with 15.2% growth for the industry average. SLB has a forward P/E ratio of 13.91 and its EPS is expected to grow at 21.82% annually over the next five years. So its P/E ratio for 2014 is 9.4. The number is relatively low compared with the market. However, some of SLB’s peers have even lower multiples. For example, Halliburton (HAL) has a forward P/E ratio of 8.4 and Weatherford International LTD (WFT)’s multiple is 10.93. Additionally, both of them have higher expected growth rates than SLB. In fact, we like all these three stocks. Pickens and Hall are bullish about WFT and HAL too. Their funds had about $10 million in total invested in WFT and another $6.4 million invested in HAL.

Suncor Energy Inc (SU): Pickens and Hall are also both bullish about SU. As of December 31, 2011, Pickens’ BP Capital had $6.2 million invested in SU and Hall’s Astenbeck had $8.0 million invested in this position. SU is quite popular among hedge funds as well. At the end of September, there were 35 hedge funds reported to own SU in their 13F portfolios. Steven Cohen was the most bullish hedge fund manager about SU. Cohen’s SAC Capital Advisors had $177 million invested in SU.

We also think SU is an attractive energy stock. Its EPS was improved by 11% in the fourth quarter compared to the same quarter in 2010. Its total revenue also grew by about 9% to $10.14 billion. Moreover, its net operating cash flow was up more than 60% compared to the same quarter in 2010, largely beating the industry average operating cash flow growth rate of -18%. Similar to many other energy stocks, SU is also trading at attractive multiples. Its current P/E ratio is 13.37 and its forward P/E ratio is 9.36. The company also has strong growth potential. Analysts estimated SU’s EPS to grow at 12% per year in the next five years. This means that its P/E ratio for 2014 is about 7.5, compared with 10.4 for its main competitor Imperial Oil LTD (IMO).

Pickens and Hall are also bullish about BP Plc (BP), Exxon Mobile Corp (XOM), Devon Energy Corp (DVN), Canadian Natural Resources Ltd (CNQ), and Transocean Ltd (RIG). Except RIG, whose forward P/E ratio is about 17, the rest four stocks all have attractive forward P/E ratios of lower than 12. BP, XOM, and DVN’s current P/E ratios are also all lower than 15. CNQ’s current P/E ratio is a bit higher (about 28), but it is expected to grow at over 30% annually. However, we do not recommend CNQ. Its high growth expectation is reflected in its price and is relatively more difficult to beat. Our favorite pick is BP because of its high dividend yield and low PE ratio. Nowadays high dividend stocks are trading at historically rich multiples, so it is nice to find an inexpensive high dividend stock.