U.S. Markets close in 3 hrs 46 mins

The Top 5 Buys of T Boone Pickens' BP Capital

- By Sydnee Gatewood

BP Capital, founded by the legendary oil tycoon T Boone Pickens (Trades, Portfolio), revealed eight new positions in its first-quarter portfolio last week.


The guru's Texas-based firm, which transitioned to a family office structure last year, operates two energy-focused mutual funds. The portfolio managers invest in companies that will benefit from the changing landscape of the oil and gas industry in the U.S.

Based on these criteria, BP's top five new positions for the quarter were EnLink Midstream LLC (ENLC), CF Industries Holdings Inc. (CF), Western Midstream Partners LP (WES), Encana Corp. (ECA) and Fluor Corp. (FLR).

EnLink Midstream

The firm invested in 225,132 shares of EnLink Midstream, allocating 1.81% of the equity portfolio to the position. The stock traded for an average price of $11.28 per share during the quarter.

The Dallas-based midstream energy company has a $5.55 billion market cap; its shares were trading around $11.39 on Tuesday with a price-earnings ratio of 57.80, a price-book ratio of 1.30 and a price-sales ratio of 0.31.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

663533907.png

GuruFocus rated EnLink's financial strength 5 out of 10. As a result of issuing approximately $1.3 billion in new long-term debt over the last three years, the company has weak interest coverage. The Altman Z-Score of 1.35 also warns that the company is at risk of going bankrupt.

The company's profitability and growth scored a 6 out of 10 rating. In addition to a declining operating margin, EnLink is weighed down by poor returns. It also has a moderate Piotroski F-Score of 5, which suggests operations are stable, and a business predictability rank of one out of five stars that is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

Pickens' firm holds 0.05% of EnLink's outstanding shares.

CF Industries

BP Capital picked up 56,444 shares of CF Industries, dedicating 1.45% of the equity portfolio to the holding. During the quarter, the stock traded for an average price of $42.45 per share.

The fertilizer manufacturer, which is headquartered in Deerfield, Illinois, has a market cap of $9.13 billion; its shares were trading around $41.79 on Tuesday with a price-earnings ratio of 30.14, a price-book ratio of 3.14 and a price-sales ratio of 2.14.

According to the Peter Lynch chart, the stock is overvalued.

537144423.png

CF Industries' financial strength was rated 5 out of 10 by GuruFocus. In addition to having poor interest coverage, the Altman Z-Score of 1.57 warns the company could be in danger of bankruptcy.

The company's profitability and growth scored a 6 out of 10 rating. Although the operating margin is in decline, it still outperforms 50% of competitors. CF is also supported by a moderate Piotroski F-Score of 6 and a one-star business predictability rank.

Of the gurus invested in CF Industries, the T Rowe Price Equity Income Fund (Trades, Portfolio) has the largest stake with 1.82% of outstanding shares. During the quarter, Louis Moore Bacon (Trades, Portfolio) also established a position in the stock, while Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) added to their holdings.

Western Midstream

Having previously closed a position in Western Midstream in the first quarter of 2016, the firm opened a new 59,963-share holding. The trade had an impact of 1.18% on the equity portfolio. Shares traded for an average price of $31.69 during the quarter.

The Woodlands, Texas-based midstream oil and gas company has a $13.94 billion market cap; its shares were trading around $30.77 on Tuesday with a price-earnings ratio of 20.11, a price-book ratio of 2.69 and a price-sales ratio of 3.38.

Based on the Peter Lynch chart, the stock appears to be overvalued.

958925475.png

GuruFocus rated Western Midstream's financial strength 4 out of 10. As a result of issuing approximately $3.7 billion in new long-term debt over the last three years, the company has poor interest coverage. The low Altman Z-Score of 1.18 also warns it is at risk of going bankrupt.

The company's profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, strong returns that outperform industry peers and a moderate Piotroski F-Score of 4. Western Midstream's one-star business predictability rank is on watch as a result of a decline in revenue per share over the last 12 months.

With 0.02% of outstanding shares, George Soros (Trades, Portfolio) is the company's largest guru shareholder. Pickens holds 0.01%.

Encana

After selling out of Encana in fourth-quarter 2018, Pickens' firm established a new 245,715-share position, giving it 1.12% space in the equity portfolio. The stock traded for an average price of $6.84 per share during the quarter.

The Canadian natural gas producer has a market cap of $9.33 billion; its shares were trading around $6.77 on Tuesday with a price-earnings ratio of 8.80, a price-book ratio of 0.79 and a price-sales ratio of 1.13.

The Peter Lynch chart suggests the stock is undervalued.

15454819.png

Encana's financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. Weakened by poor interest coverage and a five-year decline in revenue per share, the Altman Z-Score of 0.89 warns the company could be in danger of going bankrupt.

Regardless, the natural gas company is supported by margins and returns that outperform at least 72% of industry peers as well as a one-star business predictability rank.

Sarah Ketterer (Trades, Portfolio) is Encana's largest guru shareholder with an 8.35% stake. Greenblatt also established a position during the quarter, while Pioneer and Ron Baron (Trades, Portfolio) added to their holdings.

Fluor

After divesting Fluor from the portfolio in the third quarter of 2018, BP Capital started a new holding of 44,727 shares. The trade expanded the equity portfolio 1.04%. During the quarter, the shares traded for an average price of $36.51.

The engineering and construction company, which is based in Irving, Texas, has a $4.12 billion market cap; its shares were trading around $29.67 on Tuesday with a price-earnings ratio of 22.82, a price-book ratio of 1.41 and a price-sales ratio of 0.22.

According to the Peter Lynch chart, the stock is overvalued.

1900913277.png

GuruFocus rated Fluor's financial strength 6 out of 10. The company not only has adequate interest coverage, but the robust Altman Z-Score of 3.41 suggests it is fiscally stable despite recording a five-year decline in revenue per share.

The company's profitability and growth scored a 5 out of 10 rating. Although Fluor's margins are in decline and underperform competitors, it has a high Piotroski F-Score of 7, which suggests operations are healthy, and a one-star business predictability rank.

Of the gurus invested in Fluor, investment firm Hotchkis & Wiley has the largest stake with 1.22% of outstanding shares. Cohen and Jim Simons' (Trades, Portfolio) Renaissance Technologies also established positions during the quarter, while John Rogers (Trades, Portfolio) and John Buckingham (Trades, Portfolio) boosted their holdings.

Additional trades

During the quarter, Pickens' firm also established positions in Greenbrier Companies Inc. (GBX), Westlake Chemical Corp. (WLK) and Oasis Petroleum Inc. (OAS).

BP Capital's $158.67 million equity portfolio is composed of 50 stocks.

Disclosure: No positions.

Read more here:

  • Mariko Gordon's Top 5 Buys of the 1st Quarter
  • Sarah Ketterer's Top 5 New Buys
  • The Top 5 Buys of Jeremy Grantham's GMO in the 1st Quarter



Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here .

This article first appeared on GuruFocus.