Analyzing T. Boone Pickens 2 Big Buys

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Billionaire T Boone Pickens is a legendary Oil investor and entrepreneur. He founded Mesa Petroleum in 1956 which became one of the largest independent Oil companies by 1981 through mergers and acquisitions. Mesa Petroleum was finally sold to Parker & Parsley Petroleum in 1997 and T. Boone Pickens founded his hedge fund BP Capital Management LP in the same year to invest in Energy stocks. His background as an oil entrepreneur gives him an edge in this field. I closely follow the 13F filing of his hedge fund BP Capital management LP. Here’s a look at the two new positions he initiated in the last quarter.

Arch Coal Inc. (NYSE: ACI): Riding Recovery in Coal

BP Capital Management purchased 237,700 shares of Arch Coal last quarter. According to consensus estimates, Arch Coal is expected to post losses in the current year and the next. So why is T. Boone Pickens interested in this one?

Arch Coal is a highly levered bet on thermal coal demand and price recovery. The stock which once touched a high of $73 is now trading at just $6.51 after the last few years of correction. In addition to softening coal pricing/demand, the company’s stock price was also adversely affected by its high debt burden of ~$4 billion. If the things bottom out at current levels and improve from here onwards it may be an interesting deleveraging story. It seems like all negatives are already priced in the stock at these levels and Pickens is betting on a recovery.

There are some good signs as well. Natural gas, which is seen as a close replacement of thermal coal, has seen some strength in the prices of late. Spot metallurgical coal prices have also recovered from their recent lows and this recovery may continue if steel production sees any seasonal strength in 1H13. In addition to strengthening coal prices, the company is all set to benefit from the ramping up of production in Leer met mine. Overall the company looks a good bet for investors with high risk reward appetite who would like to bet on a coal price recovery.

Halliburton Company (NYSE: HAL): A Good Diversification in Offshore Drilling Space

BP Capital Management purchased 152,334 shares of Halliburton last quarter. Halliburton is trading at a forward PE of 10.39. The company’s expected EPS for the current year is $2.98 and next year is $3.05. Its topline is expected to grow 13.90% in the current year and 3.70% next year. The company has underperformed its immediate peer Transocean (NYSE: RIG) so far this year. While Transocean’s stock price has gained 18.64% year to date, Halliburton’s stock price has declined 8.14% so far this year. It seems like T Boone Pickens is betting on this trend to reverse. In addition to buying Halliburton, he has cut his stake in Transocean by 50% and sold 115,556 shares of the company. Clearly he is diversifying his holdings in off shore drilling space, but is still maintaining a bullish stance in the sector. I believe this is a good move given Halliburton’s geographical diversity and international exposure. I am bullish on the sector given the improving rig pricing fundamentals.

To sum up, Arch coal is a high risk high reward bet on improving coal pricing fundamentals. Halliburton is a good pick for investors who want to diversify from Transocean, yet still maintain a bullish view on improving rig pricing fundamentals. 


GayatriSharma has no positions in the stocks mentioned above. The Motley Fool owns shares of Halliburton Company, Microsoft, and Transocean. Motley Fool newsletter services recommend Halliburton Company and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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