At Billionairesportfolio.com, we’ve been studying the buying patterns of the world’s greatest billionaire investors and hedge funds for the past 15 years. So when two of greatest billionaire investors in the world, Carl Icahn and Warren Buffett, purchased almost $7 billion worth of energy stocks over the past couple of weeks, we paid close attention.
We know two things about Buffett and Icahn: 1) they have made billions throughout their careers buying when everyone else is selling, and 2) they have a knack for picking the winners, the stocks and sectors, and marking the bottom when they enter.
Their respective records are especially remarkable in times when widespread fear and doubt is in the air. For example, Icahn marked the bottom in technology stocks in the fall of 2012 with his 10% position in Netflix. He made $2 billion in profits on the trade, a nearly 1,000% return. Buffett marked the bottom in bank stocks in the fall of 2011 when he initiated a $5 billion position in Bank of America. That investment has almost tripled in price since, producing nearly $10 billion in open profits for Buffett.
Now, it’s typical in market environments like this to hear from experts that warn against picking tops and bottoms. But contrary to the Wall Street adages against market timing, the two best investors of all-time have amassed two of the largest personal fortunes in the world by (as Buffett says) “being greedy while others are fearful.” And they are stepping in again, this time in the energy sector.
Let’s look at the newest energy investments from this billionaire duo:
1) Phillips 66 (PSX) – Buffett revealed last week he has taken a $4.5 billon position in the energy stock Phillips 66. This is a typical Buffett stock. It sells for just 10 times earnings, a huge discount to the S&P 500’s P/E of 17, and the stock pays nearly 3% in a dividend. Furthermore, the company has a pristine balance sheet, with very little debt – a classic Buffett stock, cheap and safe.
2) Freeport McMoran (FCX) – Carl Icahn bought nearly $1 billion of Freeport McMoran last week, at much higher prices than it’s selling for today. Icahn’s cost basis for FCX is roughly $12 a share, or more than a 20% discount from its current share price. Freeport McMoran is not only one of the world’s largest copper producers, but it also a huge reserves with almost 400 million barrels in oil equivalents. Freeport is one of the cheapest companies in the S&P 500, with a price-to-book of .80 and a forward price to earnings of just 6. It’s also one of a handful of S&P 500 constituents with a share price below $10.
3) Cheniere Energy (LNG) – Carl Icahn also initiated a $1.3 billion position in energy stock LNG just a couple of weeks ago. Cheniere is on track to become the first U.S. company able to export liquefied natural gas. This makes LNG a classic “wide moat” (no competition) stock. Icahn has already secured two board seats on Cheniere’s board. Icahn’s “board seat effect” has proven to be a huge predictor of success for the legendary activist. According to an essay Icahn penned last year, when he gets a board seat in a company, his stock returns averages 27.5%.