After graduating from Oklahoma State with a geology degree, T. Boone Pickens knew that energy was the sector for him.
In his 60-year business career — first as a corporate raider, then as a legendary oil man — Pickens has become one of the most successful institutional managers focused on the oil and natural gas markets. Through various funds at BP Capital, T. Boone Pickens has amassed quite a fortune — estimated to be worth around $950 million — and has become an outspoken proponent of American energy independence.
So when Boone talks, investors should listen.
And while T. Boone Pickens is outspoken and appears regularly on financial television, the latest window into his thoughts comes from BP Capital’s latest 13F filing. Despite being dated for the end of the third quarter, the filing gives regular retail investors access to what the celebrated oilman is thinking. And that means grade-A stock ideas.
Here are five of Pickens’ best-looking holdings.
It seems that Warren Buffett isn’t the only one seeing the value in integrated oil giant Exxon Mobil’s (XOM). Through the third quarter, T. Boone Pickens initiated a new $6.77 million position in Exxon, making XOM stock the second-largest holding in BP Capital’s portfolio.
After suffering under dwindling production, XOM has trailed its peers like Chevron (CVX) in the returns department. However, this past quarter, Exxon finally saw its critical production numbers increase. And with a slate of new projects coming online in the next few years, that trend should continue. Meanwhile, the integrated giant continues to mint cash flows — which it has been graciously giving back to shareholders via hefty buybacks and dividends.
Yet, at just 12x forward earnings, XOM shares are one of cheapest options in the energy sector, not to mention the broader stock market.
Given its growth profile, leadership position, and propensity to produce billions in cash flows, investors should be seriously looking at this “reasonably-priced high-quality bond” with both eyes open. Following Pickens’ lead could result in big returns over the long haul.
T. Boone Pickens continues to be ecstatic over the hydraulic fracking boom and shale oil/natural gas. As such, many of his stock picks play into shale production growth. One of the newest is a $3.4 million position in E&P firm EQT Corporation (EQT).
EQT produces natural gas and related natural gas liquids (NGLs) from the Appalachian Basin, better known as the prolific Marcellus Shale. The firm owns roughly 560,000 acres in the Marcellus alone and has 14,000 productive wells in the entire basin.
Those generously producing wells have helped EQT report some stellar earnings over the last few quarters. Its third-quarter adjusted earnings came in at 58 cents per share — more than double the amount earned from the same period last year. Aside from production gains at EQT, the firm has benefited from its “drop-down” relationship with its pipeline subsidiary EQT Midstream (EQM). That has relationship has provided plenty of tax-friendly distributions back into EQT’s bottom line.
While it isn’t the cheapest stock, EQT shares do represent one of the major leaders in the Marcellus. It’s no wonder why Pickens loaded up.
When private equity firm Apollo Global Management (APO) started selling, Pickens started buying. Pickens has added 150,000 shares of Athlon Energy (ATHL) since it went public back in the beginning of August — a value of $4.4 million.
The mid-cap producer focuses its activities oil and liquids-rich natural gas reserves in the Permian Basin. That strategy has suited the new company well, as regional production and higher oil prices have helped ATHL trounce earnings estimates for two consecutive quarters. For the latest quarter, Athlon managed to realize a 109% increase in adjusted earnings as well as see a 69% increase in daily production volumes.
Since going public, ATHL has gone straight up and has returned a staggering 60% for investors who bought in at the IPO price of $20.
But given the awesome production and earnings gains that ATHL has already put in, it’s safe to say that there’s plenty opportunity for more as the company matures. For investors like Pickens, that could mean a lot of money.
Everyone loves a turnaround story. For T. Boone Pickens and BP Capital, that story happens to be oil service firm Weatherford International (WFT). Pickens increased the size of his position by 44% during the past three months.
The smallest of the big four oil service stocks, Weatherford has been rocked by an accounting investigation — going back six years — and major debt issues. Those problems have caused WFT to trail behind several of its rivals — both big and small.
However, things could finally be looking up for WFT. The firm recently settled those nasty accounting issues and has gotten serious about cost controls to remove its $9 billion worth of IOUs. At the same time, WFT is exploring options for land drilling rig business unit. As drilling has gotten more efficient, the number of drilling rigs focused on land are piling up. That has caused the business unit to be a huge drag on WFT’s earnings over the years. One solution being proposed by Weatherford is to spin off the business via an IPO.
All in all, these moves could finally put some spark back into WFT shares.
Dwindling crack spreads over the last two quarters have hurt the refiner’s margins — including industry stalwart Valero Energy (VLO). Sensing a bargain, T. Boone Pickens increased his stake in the nation’s largest independent downstream firm by 163%, adding another $2 million to his position.
First, those crack spreads are beginning to widen once again. The sheer amount of oil production is overflowing storage depots and is causing West Texas Intermediate prices to fall versus international standard Brent. That price difference means that margins will be on the uptick at VLO once again. Even more so as Valero has moved to exporting gasoline and other refined products in spades.
Then there is the firm’s pending midstream IPO to consider. The new MLP subsidiary will help VLO realize huge benefits and tax-deferred distributions once it gets cooking.
With a forward P/E of less than 10, investors are getting a huge deal on VLO shares — especially when considering its story is on the uptick. Following Pickens’ lead into Valero could be one of the best plays of the New Year.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.