Picking T. Boone Pickens' Brain for Energy Values

 | Feb 15, 2017 | 1:00 PM EST
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There has been a lot of noise surrounding the markets this year. Much of it is coming from Washington as we already have a whiff of scandal and what may be the quickest cabinet resignation ever. It seems every tweet attracts Wall Street's attention and is discussed at length on the financial networks. So far the Trump rally remains in place as the hope of a pro-business atmosphere with lower taxes and regulatory reform is helping to drive stocks higher. Figuring out how long this lasts is way above my pay grade, but as the owner of a lot of community banks, I am not complaining.

Fortunately, I have had a lot of 13F filings this week and focusing on them has helped me avoid much of the noise. I have found over the years that reacting to the news is not healthy for my account balances. While I am a bit of a news junkie, I have learned to leave my portfolio alone as the news and propaganda machine that is financial media spills out a constant flow of what they like to call actionable events.

As I have gone through the 13F filings, I have noticed that a lot of the activist and value managers I follow were doing a lot more selling in the last three months of the year. I commented earlier this week on the selling by some of the bank stock investors I follow. Valuations in the sector jumped quite a bit post-election, and some folks decided to ring the bell and book some of those gains. I have not yet followed suit, but I am going through my community bank stock portfolio to make sure I still love the stocks I own at current levels.

The selling has spread beyond the bank investors. Mohnish Pabrai sold a lot of stock this quarter. Ruane, Cunniff & Goldfarb sold all or part of three times as many stocks as they purchased in the quarter. Oaktree Capital Group (OAK) reduced the value of its equity holdings by about $1 billion in the quarter. The drop in total equity value over at Third Point was $1.5 billion. Tweedy Browne sold 66 stocks while adding to just 11 during the same time frame. There is a lot of selling by some very smart people going on, and investors ignore this at their own risk.

In the midst of all the selling, it was refreshing to find at least one legendary investor who had an appetite for equities. I have been a fan of T. Boone Pickens since I bought my first 100 shares of Mesa Petroleum back in the late 1980s. Pickens made some bold predictions back in 2014-2015 as oil prices were plummeting, and those who took his suggestion have done pretty well. Oil prices have not yet reached the $70-a-barrel level he predicted, but they have recovered nicely from the lows. He was still pretty bullish in the last quarter of 2016 as he did twice as much buying as he did selling.

Pickens' buying was focused on master limited partnerships (MLPs), and he appears to have a preference for income-producing infrastructure assets. Among his largest purchases were Williams Partners (WPZ) , Sunoco Logistics Partners (SXL) , Energy Transfer Partners (ETP) and Western Refining Logistics (WNRL) . Pickens long has been an advocate of using cleaner-burning natural gas to power autos, trucks and buses around the U.S., and if that idea begins to gain traction assets that help transport and store gas will gain in value.

Pickens also recently tweeted that the normal oil-to-gas price ratio is about six, which would imply $8 natural gas. That's a long way for the $2.94 price I see on the screen today. Should the price ratio normalize over the next few years, he would see huge gains in his holdings of infrastructure assets related to natural gas. He is being paid well while he waits, as most of his MLP's are yielding 7% or more.

T. Boone Pickens is one of the last of the great Texas oilmen. He knows more about energy pricing than I ever will. Most important of all, he has survived for decades in the highest-risk business in the world. His hedge fund has put up some pretty good numbers, and investors who want to be in the oil-and-gas sector would be wise to copy his approach and steal his ideas.

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