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Sydnee Gatewood
Sydnee Gatewood
Articles (740) 

The Top 5 Buys of T. Boone Pickens’ BP Capital

Energy-focused firm reports 2nd-quarter portfolio

BP Capital Fund Advisors, the hedge fund of legendary oil tycoon T Boone Pickens (Trades, Portfolio), released its second-quarter portfolio this week, listing 10 new positions.

Citing poor health and deteriorating returns, Pickens announced in a letter earlier this year that he was shutting down his hedge fund and transitioning it to a family office. BP Capital, however, will continue to manage its energy-focused mutual funds.

In order to capitalize on the changing dynamics of the global energy industry, the Texas-based firm focuses on a broad range of macro and micro factors to identify companies that are positioned to take advantage of the opportunities presented by this shift. It invests in a variety of companies across the energy supply-demand value chain.

The firm’s top five new buys for the quarter were Energy Transfer Equity LP (ETE), Fluor Corp. (NYSE:FLR), Delek US Holdings Inc. (NYSE:DK), CNX Midstream Partners LP (NYSE:CNXM) and Concho Resources Inc. (NYSE:CXO).

Energy Transfer Equity

Having previously closed a position in Energy Transfer in the first quarter of 2016, the firm established a new 283,989-share holding for an average price of $16.41 per share. The trade had an impact of 2.22% on the equity portfolio.

The Dallas-based company, which specializes in the transportation and storage of natural gas, has a market cap of $20.28 billion; its shares were trading around $17.51 on Friday with a price-earnings ratio of 16.50 and a price-sales ratio of 0.40.

The Peter Lynch chart below shows the stock is trading slightly above its fair value, suggesting it is overpriced.

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GuruFocus rated Energy Transfer’s financial strength 4 out of 10 as it has poor interest coverage and an Altman Z-Score that indicates it is in danger of going bankrupt. In addition, it has issued approximately $8.2 billion in new long-term debt over the last three years. The company’s profitability and growth scored an 8 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 6 and a business predictability rank of 4.5 out of five stars. In addition to having consistent earnings and revenue growth, GuruFocus says companies with this rank typically see their stock prices gain an average of 10.6% per year over a 10-year period.

Of the gurus invested in Energy Transfer, David Tepper (Trades, Portfolio) has the largest position with 0.52% of outstanding shares. Leon Cooperman (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Ron Baron (Trades, Portfolio), David Dreman (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) are also shareholders.

Fluor

Pickens’ firm invested in 65,649 shares of Fluor for an average price of $52.42 per share, dedicating 1.45% of the equity portfolio to the position.

The engineering and construction company, which is based in Irving, Texas, has a $7.95 billion market cap; its shares were trading around $56.51 on Friday with a price-earnings ratio of 31.75, a price-book ratio of 2.61 and a price-sales ratio of 0.40.

According to the Peter Lynch chart below, the stock is overpriced.

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Supported by sufficient interest coverage and a high Altman Z-Score, Fluor’s financial strength was rated 7 out of 10 by GuruFocus. The company’s profitability and growth scored a 4 out of 10 rating. While the operating margin is in decline, the Piotroski F-Score of 5 indicates business conditions are stable. The company also has a one-star business predictability rank. According to GuruFocus, companies with this rank see an average increase of 1.1% per year.

With 0.75% of outstanding shares, John Rogers (Trades, Portfolio) is the company’s largest guru shareholder. Hotchkis & Wiley, Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Buckingham (Trades, Portfolio), Prem Watsa (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also hold the stock.

Delek US Holdings

The firm picked up 62,769 shares of Delek for an average price of $49.62 per share, allocating 1.43% of the equity portfolio to the position.

The petroleum refining company, which is headquartered in Franklin, Tennessee, has a market cap of $4.11 billion; its shares were trading around $48.96 on Friday with a price-earnings ratio of 10.60, a price-book ratio of 2.57 and a price-sales ratio of 0.43.

Based on the Peter Lynch chart below, the stock appears to be undervalued since it is trading below its fair value.

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GuruFocus rated Delek’s financial strength 6 out of 10. The Altman Z-Score of 2.7 indicates the company is under some financial pressure as it has issued approximately $508.1 million in new long-term debt over the last three years. The company’s profitability and growth scored a 4 out of 10 rating as its operating margin underperforms nearly 70% of industry peers, its revenue per share is in decline and it has posted a loss in operating income for three years. The company is strengthened by a moderate Piotrsoki F-Score of 5, which indicates business conditions are stable, and a one-star business predictability rank.

Steven Cohen (Trades, Portfolio) has the largest position in the company among the gurus, holding 2.81% of outstanding shares. Other guru shareholders include Fisher, Simons, Greenblatt, Pioneer, Caxton and Barrow, Hanley, Mewhinney & Strauss.

CNX Midstream Partners

BP Capital purchased 145,944 shares of CNX Midstream for an average price of $18.96 per share, giving the holding 1.28% space in the equity portfolio.

The Pennsylvania-based midstream oil and gas company has a $1.3 billion market cap; its shares were trading around $20.31 on Friday with a price-earnings ratio of 12.32, a price-book ratio of 4.27 and a price-sales ratio of 5.37.

The Peter Lynch chart below suggests the stock is undervalued.

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CNX Midstream’s financial strength was rated 5 out of 10 by GuruFocus. While the company has issued approximately $382 million in new long-term debt over the last three years, it is still at a manageable level. The Altman Z-Score of 2.63, however, indicates the company is under some minor fiscal pressure as its revenue per share growth has slowed down over the last 12 months. The company’s profitability and growth was rated 8 out of 10, boosted by an expanding operating margin and a Piotroski F-Score of 6.

With 0.27% of outstanding shares, Simons’ firm is the company’s largest guru shareholder. Hotchkis & Wiley and Dreman also have positions in the stock.

Concho Resources

The firm bought 18,638 shares of Concho Resources for an average price of $143.11 per share, expanding the equity portfolio 1.17%. It previously sold out of the stock in the fourth quarter of 2017.

The oil and gas producer, which is headquartered in Midland, Texas, has a $26.95 billion market cap; its shares were trading around $134.55 on Friday with a price-earnings ratio of 17.92, a price-book ratio of 2.02 and a price-sales ratio of 6.04.

According to the Peter Lynch chart below, the stock is overpriced since it is trading higher than its fair value.

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Concho’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. The company is supported by a sufficient level of interest coverage and a high Altman Z-Score of 3.9. It also has an operating margin that outperforms 90% of industry peers, a strong Piotroski F-Score of 7 and a one-star business predictability rank. The rank is on watch, however, as the company has seen declines in the gross margin and revenue per share over the past several years.

Dodge & Cox is the company’s largest guru shareholder with 2.06% of outstanding shares. Other gurus who see value in the stock are Spiros Segalas (Trades, Portfolio), Cohen, Simons, Baron, Pioneer, Leucadia National (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates.

Other trades

During the quarter, Pickens’ firm also established positions in Solaris Oilfield Infrastructure Inc. (NYSE:SOI), Callon Petroleum Co. (NYSE:CPE), Encana Corp. (NYSE:ECA), Marathon Oil Corp. (NYSE:MRO) and Cheniere Energy Partners LP (CQP).

While the firm’s $221 million portfolio, which consists of 52 holdings, is dominated by the energy sector, it does have smaller positions in the basic materials and industrials sectors. According to its fact sheet, the TwinLine MLP Fund outperformed its benchmark in 2017 with a return of -4.75%. The Alerian MLP Index posted a -6.52% return.

Disclosure: No positions.

About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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