, founder of $34 billion mutual fund firm Southeastern Asset
Management, increased his position in CONSOL Energy (
) by 440.6 percent this week, according to
GuruFocus Real Time Picks
. He now owns approximately 10 percent of the coal and natural
gas company. Hawkins has an established set of criteria when
selecting companies to invest in, the chief of which being
whether they will perform over a long-term time period.
The result of his strategy has been substantial long-term
returns. Since inception in 1987 his Partners Fund returned
1257.67 percent, for the last five years (4.42 percent) and the
last three years 102.9 percent. In the first quarter of 2012 he
was in an up period, returning 12.91 percent.
CONSOL Energy, Hawkins' new pick, is a Pittsburgh-based coal and
natural gas producer and one of the leading diversified energy
companies in the U.S. It sells its Appalachian coal to
electricity generators and steelmakers worldwide. Its natural gas
division has grown to engage in both exploration and production,
including in the Marcellus Shale and Utica Shale region.
Hawkins enjoys seeing large price dips on his high-quality
companies, considering them opportunities to increase his
positions with a margin of safety. This was likely the case with
CONSOL Energy. It has lost almost half of its market cap in two
years and opened Friday at $27.66 per share, near its 52-week low
of $26.46 and off of its high of $55.02.
There have been several primary depressants on the stock price of
Consol recently: a warm winter, a weak economy and low natural
gas prices. Low natural gas prices, combined with perennial
concerns about the environmental impact and cleanliness of coal,
have caused more U.S. electric generators to switch to natural
gas. These generators used over 93% of total domestic coal in the
first nine months of 2011, according to the U.S. Energy
Information Administration (
Coal production rose in 2011, causing a surplus that is forcing
miners to slow production in 2012. U.S. coal production this year
fell to below its five-year range in March, the EIA reports.
CONSOL Energy experienced a surplus as well, but has already
contracted all of its thermal coal for 2012, though it has idled
some operations, it said in its first-quarter statement.
Despite the recent dip, there are several things about the
company that might attract a long-term investor such as Hawkins.
Most notably, the company is diversifying into the fossil fuel
detracting from coal sales - natural gas. It has slated projects
in both the Utica Shale and Marcellus Shale, where an estimated
500 trillion cubic feet of natural gas is trapped.
The company began its Utica Shale exploration of 20,000 acres in
Ohio in 2011 through a strategic partnership with Hess
Corporation. It is already a leading producer in the Marcellus
Shale. Combined, the company has access to natural gas reserves
of over 3.5 trillion cubic feet.
With the new wells CONSOL expects to drill in 2012, it has
projected it will produce 160 Bcfe of natural gas for the year,
an increase of nearly 12 percent, compared to pro forma
production of 142.9 Bcf the previous year. Its 2013 target is 200
to 220 Bcfe after more drilling.
The quality of the company's operations also interests Hawkins.
CONSOL has a strong cash position of $1.9 billion, with $7.5
billion in long-term liabilities in debt. It generated positive
cash flow for the last three years including a ten-year peak of
$893 million in 2011. It has also kept wide margins. Its
five-year net profit margin is 9.12 percent, comparing favorably
to rival Arch Coal (
)'s 5.8 and near Peabody Energy (
)'s 10.2 percent.
CONSOL has a P/E ratio of 10.8, P/S ratio of 1.1, dividend yield
of 1.8%, and annual average earnings growth of 23.3% over the
past 10 years. GuruFocus rated Consol Energy
the business predictability rank of 2.5-star
Initially, CONSOL was a relatively small position in Hawkins'
portfolio at 0.9 percent in the first quarter before he boosted
his stake. It larger move he is making into the energy sector,
with several oil and gas companies now in his portfolio: He owns
13.07 percent of Chesapeake Energy (
), 13.42 percent of Quicksilver Resources (
) and .2 percent of Murphy Oil (
Hawkins commented on his diversification strategy in his first
quarter letter: "Owning 18-20 companies across a number of
industries provides the diversification to reduce
company-specific risk and minimizes the risk of loss by limiting
holdings to only the most qualified businesses, managements, and
discounts. To introduce significantly more stocks would
compromise the best-in-class criteria that are so crucial to
preserving principal and generating excess return. We generally
keep single industry exposure below 15%."
See Mason Hawkins' portfolio here
. Also check out the Undervalued Stocks, Top Growth Companies,
and High Yield stocks of Mason Hawkins.About GuruFocus:
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