Soros and Texas Gold
Mohamed is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One good way to manage your portfolio in general is by combining stable, dividend paying, blue chip stocks with smaller, higher volatility, more growth oriented stocks. Legendary hedge fund manager George Soros, also known as the" man who broke the bank of England," made a sizable investment in the first quarter of this year in two such companies in the oil industry.
Stability
Soros Fund management acquired 682,000 shares of Chevron (NYSE: CVX) in Q1 for $73 million.
Chevron is a $220 billion vertically integrated powerhouse that owns everything from the oil and gas wells to refineries, to the petroleum distribution channels that sell fuel and other petrochemicals to their end users. This end to end integration means Chevron gets to keep a greater percentage of every revenue dollar it generates. Chevron has a 16% operating margin compared to an industry average of 11%, the company is also trading at an 8.66 trailing P/E compared to an industry average of 10.23.
Chevron has growth oppurtunities through its exposure to offshore drilling, but due to the sheer size of the company, both the risks and rewards of that fact are mitigated.
George Soros for some reason sold all 682,000 shares in the second quarter. Funds can sell for any number of reasons, so I wouldn't get too caught up on that. Regardless, I still believe that Chevron is still an attractive stability cornerstone of any portfolio due to its solid balance sheet and 3.7% dividend yield.
Growth
A much smaller company that Soros made an investment in during the first quarter was Tesoro (NYSE: TSO), with a purchase of 1.3 million shares valued at $34 million. Soros' position gives him a 1% stake in the company.
Tesoro is an independent oil refiner that currently has a refining capacity of 931,000 barrels per day and a retail business that owns 2,000 gas stations. The company's CEO Gregory Goff was named the best mid-cap CEO by Cheifist.com. Tesoro's business is based in the Western United States in states such as Utah, Hawaii, and California as opposed to the Gulf area where a great deal of refiners are located. The heavy presence and leadership of Tesoro in that area of the United States gives it an edge by allowing it to charge a premium on its gasoline and petrochemical products.
Speaking of California, the company acquired British Petroleum's (NYSE: BP) oil refining facility last month and 800 gasoline stations in the Southwest for $1.18 billion, paying a below-average price for the facility at 15% of the refinery’s replacement value, compared to an industry average of 25 to 30 percent, plus $1.3 billion for crude and other inventories at the Carson plant for a total of $2.48 billion. The Carson plant is Tesoro's third plant in California and, close to the Wilmington refinery, the company projects it can save $250 million a year by combining the two plants' operations. In addition BP has the only dock on the West Coast that can accommodate very large crude carriers, which will allow Tesoro to bring in a wider variety of crude oil, providing access to lower-cost crude and feedstocks for its refineries.
Tesoro, at a $5 billion market cap and an attractive valuation level, might also become an acquisition target for a much larger company.
Foolish Bottom Line
By combining the best of breed blue chip and growth stocks, you can have the best of both worlds. I believe that Chevron and Tesoro are currently two of the best stability and growth plays in the oil industry right now.
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