What’s on the Plate for Billionaire Druckenmiller?

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The recent 13F filings are revealing some very interesting investment opportunities. The Founder of Duquesne Capital, Stanley Druckenmiller, holds two stocks from the highly cyclical Oil and Gas industry. Among his top five new additions, Exxon is the number one having 6.7% of his firm's 3Q filing while Chevron is the fourth pick with 4.85%. Other picks includes homebuilder majors Lennar Corporation and D.R. Horton with a pharma giant Merck being the fifth largest

Let’s have a brief on his top two picks:

ExxonMobil (NYSE: XOM): The world’s largest oil producer and revenue generating company has currently a pipeline of ~20 projects to be operational by 2014. It has an industry leading cost structure and integrated operations that provides it higher margins. Furthermore, its diversified portfolio and a dividend yield of 2.6% make it an attractive buying opportunity.

Lennar Corporation (NYSE: LEN):  There is no doubt that low mortgage rates and a steady rise in employment will drive the performance of homebuilders. The contract backlog of Lennar increased to 79% year over year providing 4,198 new orders and a backlog of 4,513 homes showing an improving housing market. The company has an industry leading operating margin of 4.85% which will further drive its revenue growth.

These two companies obviously have huge potential, but the inclusion of Chevron in his portfolio is a really surprising move. Chevron (NYSE: CVX)  has been facing hard times recently, as the US Supreme Court refused to  hear its Eucodoran case that required it to pay a hefty ~$19 billion. However, some hedge fund managers are still investing in this stock. Stanley Druckenmiller has invested $88 million in Chevron. Other than this, Bill Miller of Legg Mason and John Levin of Levin Capital Strategies have an investment of ~$140 million and $60 million, respectively, in this company.

Despite the prevailing hardship, it is relevant to note that there must be some underlying strong growth prospects that has caused some top hedge fund managers to pick this stock. When I had a detailed look on the company, I found some of the growth drivers which are compelling enough to enhance this stock ahead.  Moving forward, the company has a bag full of new strategies to increase its output and foothold globally to remain immune from any economic downturn.

Buying stakes

Chevron has various plans for investing globally to boost its output. Let’s have a look at its major investments:

  • It has acquired Chesapeake Energy's Permian Basin assets. It will add 246,000 net acres to its capacity, including its 7,000 Boe/d of net production currently. Tapping the early potential of lucrative assets will give Chevron an exposure in the Delaware Basin in New Mexico.
  • Plans for the emerging markets expansion include acquisition of 50% stake in LL Investicijos of Lithuania which has high reserves of shale gas. As per Lithuania’s geological estimates, it holds 120 bcm of recoverable reserves. In planning to reduce its dependence on Russia for the natural gas supply, Lithuania is extending its local resource market to new explorers. Chevron has an option to buy the 50% stake held by the Danish company Jylland Olie and the other 50 percent held by a local businessman.
  • Chevron signed a deal with the Indian oil and gas giant Reliance Industries to acquire stakes in its two oil-exploration blocks in the Kurdish, Iraq. Reliance already holds the oil licenses in question, known as Rovi and Sarta and at the end of the deal Chevron would have 80% of the blocks. The 20% stake remains with OMV Rovi GmbH and OMV Sarta GmbH.

Other Critical positive signs

The Wheatstone Project in Australia is expected to deliver significant revenue as it is well placed geographically as more than 80% of the LNG from Wheatstone is under long-term agreements with Asian. Additionally, Yokogawa Australia has won a $20 million deal in a supply bid from Bechtel for integrated control and instrumentation systems for the Chevron-operated Wheatstone Project. Under the deal, Yokogawa will supply the CENTUM VP integrated production control system, the ProSafe-RS safety instrumented system, and the Plant Resource Manager (PRM) plant asset management system for two LNG trains with a combined capacity of 8.9 million tons per annum. Furthermore, Chevron has two more positive stimulants which include restarting of the deep-water Rosebank Project in the United Kingdom and also the natural gas recovery in Satyr-4 exploration well in the Greater Gorgon Area Australia accounts for increase in its output.

While the above discussed indicators give us a snapshot of how the company has planned well its strategies for the long haul. I believe the company offers a good entry with a forward P/E of 8.53x with an appreciation of ~7% in its stock price; it is currently trading at $104.10. New contracts are a proof of the company’s competency and capability. Also with the rising world population, the increase in energy demand could give Chevron new opportunities. I would recommend buying this stock.


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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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