Thursday, February 9, 2012

"Hedge Funds’ Energy Stock Picks" (Citadel, Jana, usual suspects)

From Insider Monkey:
The energy sector is a minefield. There are those that predict that the world will see another oil shock by the end of 2013, as the natural gas boom is threatened by concerns over fracking. Then there are the issues related to American energy independence, a feat that will likely come only with some degree of concentration and the development of new energy technologies – both things that would most likely affect the bottom line of the energy sector as it currently stands. Regulation, whether it stems from fracking or otherwise, is also a major concern. Many say regulation is the primary reason why the US is still dependent on foreign energy, citing restrictions on drilling and environmental concerns. Leaving those political subjects to the side, what does this mean for investors putting their money in the energy sector?

One person’s guess is as good as another’s at this point. Rather than try to guess, we like to look to hedge fund managers to see what they are investing in. Hedge funds report their activities every quarter, and sometimes more often if a trade is large enough to require it. As such, it is easy to follow along with their movements, even going so far as to monkey their largest positions. After all, stocks with a high amount of hedge fund investment tend to outperform those that don’t share the same support. Lately, hedge funds have been buying in the energy sector, and not just the big name oil companies like Chevron (CVX) and ConocoPhillips (COP) (we like both Chevron and ConocoPhillips as long-term investments and have a long position in COP). In fact, the trend seems to be largely focused on smaller energy companies.

Recently, Barry Rosenstein’s Jana Partners took a 5.5% stake in Marathon Petroleum Corp (MPC), a move which makes the fund the refiner’s biggest shareholder. It also has options in MPC, exercisable February 17, which would allow the fund to buy an additional 896,000 shares at $27.50 each. As of the open of trading on Tuesday, February 7, MPC was trading at $44.30 a share, with a mean one-year target estimate of $50.50 a share. Marathon Petroleum is an excellent long-term pick. The stock’s PE ratio is less than 9 and it is expected to increase its earnings by 28% annually over the next five years. If Wall Street projections turn out to be accurate, the stock should easily triple its value in 5 years....MORE