3 Top Picks of T. Boone Pickens
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T. Boone Pickens founded BP Capital. A self-made man, Pickens has been at the helm of his self-titled investment firm for 45 years. Starting his career with Mesa Petroleum, Pickens later acquired a taste for acquisitions. Due to his savvy management of mergers and acquisitions, Pickens gained celebrity status and renown from the 1980s onward. It was the Gulf Oil takeover that gave him the Times Magazine cover in 1985. Large positions in ExxonMobil and Occidental Petroleum have led to huge returns over 40% for Capital Commodity, Pickens’ fund as of 2007.
In this article, I will take a look at T. Boone Pickens' latest significant picks. Obviously, all of his latest picks are from the energy sector. These are Pioneer Natural Resources (NYSE: PXD), Tesoro (NYSE: TSO), and Occidental Petroleum (NYSE: OXY).
BP Holdings in Pioneer Natural Resources
Pioneer Natural Resources is an oil and gas exploration and production company. Since 2012, BP Capital has been a holder of Pioneer Natural Resources. Since then, the company has been a favorite of the hedge fund. During Q1, BP increased its holdings in Pioneer from 6.44% to 12.81% of the portfolio. This change ranked Pioneer at first place in Pickens' portfolio.
Are investments safe?
Pioneer Natural Resources is the third-largest driller in the United States. Its three liquids and resource-rich core assets in Spraberry vertical, the Eagle Ford Shale, and the horizontal Wolfcamp Shale are the key drivers of its profitability. Recently, Pioneer announced its first-quarter results with 10% growth in oil production.
Its 900,000-acre leasehold position in the Spraberry/Wolfcamp can produce more than 4.6 billion barrels oil equivalent (BBOE). Additionally, the company is ramping up its appraisal activity of Wolfcamp, Spraberry Shales, and Jo Mill across its northern acreage. Pioneer’s profitability should substantially increase as these plays are developed.
With this solid investment strategy, Pioneer is expecting to increase its EPS growth 27% over the next year. This solid profitability momentum enables the stock to follow upward momentum. Over the past year alone, the stock has been able to gain 59% with few shortfalls. This means, Pickens has already gained around 59% on its investment in Pioneer.
BP Holdings in Tesoro
Tesoro is a refiner and marketer of petroleum in the United States. The company operates in two business segments, namely wholesale markets, selling motor fuels in the retail market, and refining crude oil, selling refined products in bulk. During Q1, Pickens initiated a position in Tesoro by purchasing 99,657 shares. Tesoro currently accounts for 5.88% of BP's portfolio and is ranked at sixth place.
Are investments safe?
Tesoro has displayed smart investment strategies to boost profitability. The company has spent heavily to back larger income improvement projects. The most major projects include rail facilities and capacity expansion. Tesoro’s smooth acquisition of BP refinery assets in California is yet another step in that direction. Furthermore, the company continues to spend on a number of small projects, which could also enhance its earnings.
As a result of this aggressive investment strategy, the company was able to generate an operating income of $300 million at the end of Q1. With this solid investment strategy and strong financial situation, its stock price has increased 169% in the last year alone. Recently, Credit Suisse named Tesoro as one of the most undervalued stocks in the refinery sector. Therefore, they have increased their price target to $74 per share. At current valuations, the stock looks like a good buy with a 1.90% dividend yield and strong upside potential.
BP Holdings in Occidental Petroleum
Occidental Petroleum is a holding company. The company operates in three business segments, namely the chemical and midstream segment; the oil and gas segment; and marketing/other segments. Occidental is a consistently favored stock in Pickens' portfolio.
Are Investments Safe?
Occidental Petroleum has been able to enhance its production by the acquisition of established properties. At the end of Q1, Occidental’s total production was 763,000 barrels, representing an increase of 8,000 barrels over the first quarter of 2012. As a result, its Q1 EPS of $1.69/share beat Wall Street projections by $0.14/share.
The company is also looking to enhance its margins. Occidental has been able to reduce its domestic well and operating costs by about 19% during Q1 to this end. This solid financial situation permits Occidental to pay hefty quarterly dividends. In the past five years, Occidental has been able to grow its dividend by 100%. Investors often admire solid profitability momentum. Thus, in the last six months alone, its share price has appreciated 28%. I believe, with a forward PE of 12.64, the stock has significant upside potential.
T Boone Pickens is a value investor who makes worthwhile choices. He likes companies with substantial upside potential. His latest three picks have had an excellent profitability momentum. Pioneer Natural Resources is one of the best among these three. The company is well positioned with three liquids and resource-rich core assets. Pioneer has substantial upside potential as it is anticipating an increase in EPS of 27%. Tesoro and Occidental Petroleum also look like safe investments.
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