Bill Nygren (Trades, Portfolio) and his partners at Oakmark are value investors. They buy companies at a substantial discount to intrinsic value. Oakmark focuses on free cash flows, intelligent investment of excess cash and a high level of insider/manager ownership. Oakmark's Win Murray was interviewed by CNBC on December 24, 2019.
Murray starts off by saying that "you never wake up in the morning wishing you had a chance to buy an energy company."
Energy has been a significant laggard in recent quarters. There has been a huge amount of underinvestment in the sector, and major energy indices are down. The market is giving away these companies at a discount to the run-off of their existing fields.
According to the interview, the criteria Murray values most when choosing energy investments are as follows:
- Since the industry has a history of bad capital allocation, it is important to find managers that think like an investor.
- Look for companies with oil exposure (as opposed to gas exposure).
For example, Diamondback (FANG, Financial), Apache (APA, Financial) and EOG (EOG, Financial) are growing dividend and free cash flow yields. Meanwhile, their number of rigs is declining and offshore has collapsed. Oil price is going up, and these companies have a large amount of exposure.
Great investors deploy capital in industries that don't receive capital. If you can buy into companies that have survivability (to ensure they can get through a prolonged downturn), Murry believes you are well-positioned to take advantage of a rebound. The decline rate in the Permian basin is high, and with the low CapEx going into it, it is hard to see how shale can keep up with supply.
Disclosure: no positions
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