From June 18 through June 20, Mr. Ross purchased 700,000 shares at an average price of $6.78 per share. His total cost amounted to $4,746,751. INVESCO’s WL Ross & Co. is a specialist in leading turnaround groups that invest in and restructure distressed companies. The fund is managed by Mr. Ross and has a sizable stake in the company. As of March 31, 2012, it held over 29.5 million shares. Mr. Ross has been a buyer for a while, actually paying as much as $14 per share in August of last year. Wilbur Ross’ other stock picks include Governer & Co. of the Bank of Ireland (IRE) and BankUnited (BKU).
Other notable funds and personalities hold large positions in XCO. At of the end of March, 2012, both Ares Management LLC and Perkins Investment Management, LLC held slightly more than 13 million shares. Billionaire and media personality, T. Boone Pickens, a director of the company, reported owning over 9.2 million shares in a filing made at the end of 2011. Billionaires Howard Marks, Phil Falcone, and Ken Griffin also had positions in the stock (see Ken Griffin’s top stock picks).
Over the previous year, a supply glut of natural gas drove the commodity to record low prices, prompting many investors to sell their shares of XCO without pause. The stock consequently fell off the proverbial cliff, tumbling from a 52-week high of $16.70 reached last July, to a 52-week low of $5.74 touched on both April 18 and 19 of this year. That’s a drop of 65.6%, about two-thirds of the company’s market value wiped away in a few months. Since reaching those lows, shares have recovered slightly, trading near $6.92. However, that is still 58.5% off its peak.
There does appear to be light at the end of the tunnel for XCO. Natural gas prices might be finding their footing as a recent report found that power generation plants used 40% more natural gas and 20% less coal this past March. As that trend may continue, the glut in natural gas supplies could be shrinking, helping to lift or at least stabilize prices.
Several analysts have recently become more positive on the stock as well. On May 8, KeyBanc upgraded XCO to a Buy. Not only did analyst Jack Aydin see better gas prices coming, he sees opportunities others don’t and adjusted his 2012 earnings estimates from $0.04 to $0.16 per share, a 400% increase. Mr. Aydin stated this was an environment where “XCO has a number of potential transactions that are on the cusp of being consummated, which could provide significant catalysts for shares if executed to plan.” Such a large drop in XCO’s share price, in such a short time, may end up being an opportunity to catch undervalued shares along with the top dogs on Wall Street. XCO also has a dividend yield of 2.35%. Its peers Encana (ECA) and Chesapeake (CHK) yield 4.1% and 1.9% respectively. The stock prices of these two stocks were also under significant pressure over the past 52-weeks, losing more than a third of their value. The declining prices also grabbed the attention of billionaires Carl Icahn and Dan Loeb. Dan Loen made CHK one of its top 5 positions recently (see Dan Loeb’s investor letter).
There are warts on XCO as it swims upstream in a difficult industry, selling a commodity as fickle as a two year-old child at dinner. Yet there are many reasons to be hopeful, if not love the stock at these prices. At least love it as much as the Chairman, Mr. Ross, loves his newly purchased Magritte. At under $7.00 per share, any buyers’ remorse would be much easier to handle. Stock certificates also come in convenient sizes, lending themselves to framing.
