BP Capital Fund Advisors (Trades, Portfolio), the investment firm founded by the late T. Boone Pickens , who passed away this past September, disclosed three new positions in its fourth-quarter 2019 portfolio this week.
The legendary oil tycoon’s Texas-based firm transitioned to a family office structure in 2018, but still operates two energy-focused mutual funds. When picking stocks, the portfolio managers look for companies that will benefit from changes in the U.S. oil and gas industry.
Based on these criteria, BP Capital established positions in PDC Energy Inc. (PDCE, Financial), Schlumberger Ltd. (SLB, Financial) and Devon Energy Corp. (DVN, Financial).
PDC Energy
The firm invested in 75,899 shares of PDC Energy, allocating about 1.83% of the equity portfolio to the holding. The stock traded for an average price of $23.99 per share during the quarter.
The Denver-based oil and gas company has a $2.3 billion market cap; its shares were trading around $22.33 on Friday with a price-earnings ratio of 10.34, a price-book ratio of 0.59 and a price-sales ratio of 0.88, which GuruFocus noted were near multiyear lows.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated PDC’s financial strength 4 out of 10. Although the company has sufficient interest coverage, the Altman Z-Score of 1.16 indicates it is in financial distress and could be at risk of going bankrupt.
The company’s profitability scored a 6 out of 10 rating, driven by strong margins and returns that outperform over half of its competitors. PDC also has a high Piotroski F-Score of 8, which implies operations are stable, and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Of the gurus invested in PDC, NWQ Managers (Trades, Portfolio) has the largest position with 0.93% of outstanding shares. Other guru shareholders are Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
Schlumberger
Having previously exited a position in Schlumberger in the second quarter of 2016, BP Capital entered a new 37,500-share holding, dedicating 1.25% of the equity portfolio to it. During the quarter, the stock traded for an average per-share price of $35.85.
The oilfield services company, which is headquartered in Houston, has a market cap of $47.56 billion; its shares were trading around $34.43 on Friday with a forward price-earnings ratio of 20.53, a price-book ratio of 2 and a price-sales ratio of 1.45.
According to the Peter Lynch chart, the stock is overvalued.
Weighed down by poor interest coverage and a low Altman Z-Score of 1.42, Schlumberger’s financial strength was rated 4 out of 10 by GuruFocus. In addition, the company’s return on invested capital is lower than its weighted average cost of capital, suggesting it might not be capital efficient.
The company’s profitability fared better, scoring a 7 out of 10 rating despite having negative returns. Although the operating margin is in decline, it still outperforms more than half of its industry peers. Schlumberger also has a moderate Piotroski F-Score of 5, which indicates business conditions are stable. The two-star business predictability rank is on watch as a result of revenue declining over the past five years. GuruFocus says companies with this rank typically see their stocks gain an average of 6% per year.
With a 4.27% stake, Dodge & Cox is Schlumberger’s largest guru shareholder. Other gurus who own the stock include First Eagle Investment (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Ken Fisher (Trades, Portfolio), Charles de Vaulx (Trades, Portfolio), Pioneer, John Rogers (Trades, Portfolio), David Carlson (Trades, Portfolio), Bestinfond (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and the IVA International Fund (Trades, Portfolio).
Devon Energy
The firm picked up 50,000 shares of Devon Energy, expanding the equity portfolio 1.08%. Shares traded for an average price of $22.57 during the quarter. BP previously sold out of the stock in the fourth quarter of 2018.
The Oklahoma City-based company, which explores for and produces oil and gas, has an $8.67 billion market cap; its shares were trading around $22.54 on Friday with a price-earnings ratio of 7.06, a price-book ratio of 1.34 and a price-sales ratio of 0.97.
Based on the Peter Lynch chart, the stock appears to be undervalued.
GuruFocus rated Devon Energy’s financial strength 4 out of 10. The Altman Z-Score of 2.22 indicates the company is under some financial pressure as its revenue per share has been in decline for the last five years.
The company’s profitability scored a 5 out of 10 rating, driven by strong margins and returns that outperform over half of its competitors. Devon Energy also has a moderate Piotroski F-Score of 6 and a one-star business predictability rank.
Paul Singer (Trades, Portfolio) is the company’s largest shareholder among the gurus with 3.9% of outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Fisher, Tweedy Browne (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Greenblatt, Pioneer, Grantham, Lee Ainslie (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Michael Price (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) also have positions in the stock.
Additional trades and portfolio composition
BP Capital also added to a number of other holdings during the quarter, including Pioneer Natural Resources Co. (PXD, Financial), EOG Resources Inc. (EOG, Financial), Kinder Morgan Inc. (KMI, Financial), ONEOK Inc. (OKE, Financial), MPLX LP (MPLX, Financial) and ConocoPhillips (COP, Financial).
The firm’s $100 million equity portfolio is composed of 37 stocks. While the majority of the portfolio is composed of energy stocks, the basic materials sector is also represented.
Among its energy-related holdings, midstream oil and gas companies have the largest presence at 71.87%.
Disclosure: No positions.
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