Four Energy Names to Watch

 | Apr 02, 2013 | 11:00 AM EDT
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Over the past 12-18 months, several major integrated energy concerns have unlocked significant shareholder value by shedding assets, responding to activists and spinning off non-core exploration and production (E&P) assets. I have been fortunate enough to benefit significantly by having two of these concerns within my portfolio while they were increasing shareholder value.

First, ConocoPhillips (COP) spun off its refinery assets via Phillips 66 (PSX) in April of 2012. PSX has more than doubled since it debuted and COP has steadily increased in value since the divestiture as well. Second, Hess HES has responded to activist pressure from Elliott Management by shedding assets to de-risk its balance sheet while focusing the company on longer-lived international assets and North American shale prospects. Most recently, management agreed to sell some $2 billion in assets in Russia.

In October, I noted that these moves could unlock shareholder value when the shares were trading at $55 a share. They have since risen to $73.50, but given the progress made via divestures and several analyst upgrades, I believe the shares have further to go and could hit the $85 to $90 a share target "El Capitan" Cramer recently predicted for them.

I currently hold two other large energy concerns in my value portfolio: Occidental Petroleum (OXY) and Apache (APA). Both sport cheap valuations and could have significant upside if the enterprises follow ConocoPhillips and Hess and make moves to unlock shareholder value.

Occidental Petroleum has been one of the poorest performers among large energy concerns over the past two years. The stock is trading about 25% lower than its highs in 2011 -- even as the overall market has staged a significant rally over the past two years. The shares are cheap, selling at around 6x operating cash flow. In addition, the stock also pays a solid 3.3% dividend. This underperformance has caught the attention of the board members, who are currently fighting about bringing in new leadership to help right the ship . I believe this is the first shot of a coming battle to significantly improve this stock's value.

Given their success at other energy concern activists may also target the company. In addition, Occidental could add value by spinning off its large chemical operations.

Apache is one of the largest independent oil and gas concerns in North America. Similar to Occidental, its shares have similarly underperformed over the past two years. The company is already under way on its own internal transformation. Through acquisitions, it has increased the production coming from North America to 57% of total production from just 46% in 2010. The company is also looking to shed some $2 billion in deep-water assets  to reduce debt and concentrate on its U.S. onshore assets. The stock is cheap, as it is selling at book value. Plus, APA is priced at the bottom of its five-year valuation based on P/E, P/S and P/CF.

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