Hedge fund giant Citadel is buying this fallen energy stock

2015-02-08

While the crash in oil prices is certainly cause for concern when it comes to energy stocks, it is also affording brave investors the opportunity to buy into companies at reduced rates, and Ken Griffin's Citadel Investment Group is one of the companies taking advantage of this. Citadel disclosed in a recent filing with the SEC that it has upped its stake in Newfield Exploration Co. NFX, -0.32% to 8.57 million shares, accounting for 6.2% of that company's common shares. That's an increase of 3.39 million shares.

Citadel Investment Group is one of the largest hedge funds in the world, with an equity portfolio that was valued at a staggering $79.77 billion as of September 30. The fund was launched in 1990 by Griffin, with assets under management of just $4.2 million. With nearly 1,000 employees and offices in 10 cities around the world, the fund now has assets under management surpassing $100 billion. In 2008, Griffin was one of the first 14 hedge fund managers to be deservedly inducted into the Institutional Investor's Alpha Hedge Fund Hall of Fame.

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Interestingly, it appears Citadel sold off a large chunk of their shares briefly, before their most recent move to invest even heavier. We reported in early November that they had increased their position in Newfield Exploration Co. to 7.28 million shares from the 2.58 million they had reported on September 30. However their recent filing dated to December 30 indicates they sold 2.1 million of those shares between then and the end of the year, as oil prices worsened and the stock was just about to have its roughest stretch, falling 33% from late November to the middle of December.

Newfield Exploration Co.'s stock has since rebounded to gain 33% back from those December lows, and with oil prices widely assumed to have bottomed out (though not necessarily set to rebound in any significant way for some time), Ken Griffin clearly feels the time is right to make a big move into this stock. Nor is it the only energy stock he's shown interest in at such depleted values.

In addition to their most recent investment in Newfield Exploration Co., Citadel also raised its exposure to Bonanza Creek Energy Inc. BCEI, +1.16% in early January, nearly doubling its position to 2.35 million shares and a 5.7% stake in the company. While Newfield Exploration Co. is down 28.01% since July 1, many other energy stocks have fared even worse, with Bonanza falling 48.48% during that same time frame, and Oasis Petroleum Inc. OAS, +1.36% plummeting 67.26%.

That is perhaps one of the strongest signals that the company is on good financial ground, that it has weathered the disastrous dip in oil prices as relatively well as it has, and is now making a big move north. Newfield Exploration Co. is up 17.33% year-to-date, and 38.95% since January 14. Some of that optimism comes from their China operations, which the company announced that they would retain on January 13, rather than sell. Those operations are expected to generate significant free cash flow over the next few years, which can be used to pay down debt and provide added liquidity.

In its most recent quarterly results, for the third quarter of 2014, Newfield posted a strong $2.02 earnings per share, up from earnings of just $0.05 per share during the same year-ago period. They will announce their fourth quarter and full-year results for 2014 later this month.

The recent surge has been bad news for short positions, which had increased by 36.5% from December 31 to January 15, to 7.7 million shares. The shorts clearly didn't anticipate what it appears Citadel Investment did: that the stock was poised for a turnaround as oil prices bottomed out and stabilized, which they were bound to do. That's why we put our trust in the best hedge funds in the world to predict and be on the cutting edge of trends long before the rest of the market has caught on, and Citadel Investment Group is certainly one of those.

Other top funds we track with positions in Newfield Exploration Co. as of September 30 were Andreas Halvorsen's Viking Global with 9.02 million shares, Israel Englander's Millennium Management with 2.21 million shares, and Terence Hogan's Addison Clark Management with 1.83 million shares.