A guru investor from Austin, Arnold Van Den Berg (Trades, Portfolio), predicted $70 oil by the end of the year. With the price of a barrel of Bren crude oil hovering around $44, Van Den Berg signaled he still believes his case by buying three new energy-related companies in the first quarter.
Van Den Berg outlined his thesis on oil in a January paper, “CM Outlook for Oil,” from his advisory firm, Century Management. In the paper, Van Den Berg said the second half of the year should bring higher prices as U.S. production declines, OPEC continues full production and spare capacity falls to near zero.
On the demand side, Van Den Berg said the International Energy Agency has historically underestimated world demand and erroneously not included the price of oil in its estimates. With lower gas prices causing increased sales of less fuel-efficient vehicles and miles driven, the demand may exceed the agency’s estimates.
According to Van Den Berg, all of this will lead to an end of oversupply and the return to demand exceeding supply in 2016 and into 2017.
“We believe, under this scenario, energy stocks will outperform many sectors of the market in 2016 and even more so in 2017,” he said.
Other big-name investors disagree. Wilbur Ross (Trades, Portfolio), chairman and CEO of WL Ross & Co., told CBC Monday he expects oil to prices to range between $35 and $40 for the near future and were not likely to rise far above $45 as inventories remain high. Ross also predicted OPEC talks in June would fail because neither Iran nor Saudi Arabia would consent to limit its production if the other nation refused.
Energy stocks have seen a 5% bounce year to date as the fourth best performing of 11 S&P 500 sectors, while over the last year it ranked as the worst, falling 21%.
Van Den Berg was an early investor in oil’s decline, increasing the sector to 19% of his portfolio at its peak allocation in second quarter 2014. He has since pulled back considerably but maintained a 9% position in the first quarter of 2016.
He has been diversifying his oil holdings, though. He bought one new holding in the third quarter, five in the fourth and three in the first. His new buys this quarter were: Denbury Resources Inc. (DNR, Financial), Dawson Geophysical Co. (DWSN, Financial) and Devon Energy Corp. (DVN, Financial).
With the increase in oil, Van Den Berg also purchased seven additional stocks: McKesson Corp. (MCK, Financial), Alliance Data Systems Cop. (ADS, Financial), Second Sight Medical Products inc. (EYES, Financial), PHI Inc. (PHIIK, Financial), Comcast Corp. (CMCSA, Financial) and Newmont Mining Corp. (NEM, Financial).
McKesson Corp. (MCK, Financial)
Van Den Berg bought 70,171 shares of McKesson Corp., at 1.89% of the portfolio. The stock price averaged $162 for the quarter.
McKesson Corp. has a market cap of $40.19 billion; its shares were traded around $175.80 with a P/E ratio of 21.01 and P/S ratio of 0.21. The trailing 12-month dividend yield of McKesson Corp. stocks is 0.61%. The forward dividend yield of McKesson Corp. stocks is 0.64%. McKesson Corp. had an annual average earnings growth of 28.40% over the past 10 years. GuruFocus rated McKesson Corp. the business predictability rank of 3-star.
Alliance Data Systems Cop. (ADS, Financial)
Van Den Berg bought 30,222 shares of Alliance Data Systems Corp., at 1.14% of the portfolio. The stock price averaged $220.
Alliance Data Systems Corp. has a market cap of $12.57 billion; its shares were traded around $212.12 with a P/E ratio of 24.61 and P/S ratio of 2.04. Alliance Data Systems Corp. had an annual average earnings growth of 19.9% over the past 10 years. GuruFocus rated Alliance Data Systems Corp. the business predictability rank of 4.5-star.
Devon Energy Corp. (DVN, Financial)
Van Den Berg bought 210,925 shares of Devon Energy Corp., at 0.99% of the portfolio. The stock price averaged $24.
Devon Energy Corp. has a market cap of $14.78 billion; its shares were traded around $33.50 with and P/S ratio of 1.01. The trailing 12-month dividend yield of Devon Energy Corp. stocks is 2.88%. The forward dividend yield of Devon Energy Corp. stocks is 0.75%.
Dawson Geophysical Co. (DWSN, Financial)
Van Den Berg bought 285,515 shares of Dawson Geophysical Co., at 0.22% of the portfolio. The stock price averaged $4.
Dawson Geophysical Co. has a market cap of $105.140 million; its shares were traded around $4.86 with and P/S ratio of 0.38.
Denbury Resources Inc. (DNR, Financial)
Van Den Berg bought 77,755 shares of Denbury Resources, at 0.03% of the portfolio. The stock price averaged $2.
See the rest of Van Den Berg’s stocks at his portfolio here. Click here to get more great information by starting a free 7-day trial of Premium Membership to GuruFocus.
