This week and next, the ritual that occurs every 45 days after each quarter is taking place. Investment managers release their latest 13F filings, which let the public peek into their respective investment activities. One investor and one company caught my attention yesterday.
I believe Howard Mark of Oaktree Capital Management has one of the most brilliant investing minds of our time. Anyone remotely interested in buying stocks should read his monthly memos, which are free to view on Oaktree's website. Marks is well known as a very shrewd distressed debt investor.
So when it was disclosed that he has invested a huge amount in Exco Resources (XCO), it caught my attention. Exco is a highly leveraged oil-and-gas company, and the fact the one of best distressed debt investors on the planet took a big position in the equity is very intriguing.
Trading around $4.30 a share, with a market cap of $1.2 billion, EXCO is trading at its 52-week low. Famed investor Wilbur Ross is also a shareholder. Perhaps no one knows how to find value in seemingly depressed assets better than Ross. He's done it with steel companies, coal and now looking to do it with oil and gas.
EXCO has more thant a billion in net debt, but recently the company sold $500 million of eight-year notes at 8.5%. The company has more than 1 trillion cubic feet of gas and oil equivalent reserves. Chesapeake (CHK) sits on 2.7 billion barrels of oil equivalent, equal to approximately 16 trillion cubic feet of gas equivalent and its shares are being valued at $17 billion or an enterprise value (EV) of $28 billion. I consider Chesapeake to be extremely undervalued, so if I apply a rough comparison of proven reserves to EV, I can come up with the same view on Exco.
On top of that, Exco is absolutely hated by the market -- the stock has done nothing for a long time. Super investors are taking note and investing, and it is that type of contrarianism that captures my attention. With a market cap of $1 billion, it would take very little additional investor interest to create a significant gain. Exco is one to watch.