The T. Boone Pickens Way: How To Supercharge Your Portfolio
by Floyd G. Brown, Contributing Editor
Wednesday, August 13, 2008: Issue # 837
While many billionaires are enjoying retirement on a super-sized yacht in the Caribbean, T. Boone Pickens is doubling down at the age of 80. Over the last three decades, investors who have followed his lead have made millions.
Pickens doesn't work because he wants to move up the Forbes' list of billionaires. Since last year, he's given away over $200 million to his favorite charities. Instead, Pickens is a man on a mission and with a simple message: Ditch foreign oil and rebuild America's domestic energy industry for a green and happy future.
Educated as a geologist, in 1951 T. Boone Pickens joined Phillips Petroleum and by 1956 he struck out on his own as a wildcatter with $2,500 of borrowed money. Pickens has been in the oil and gas business ever since. His company, Mesa Petroleum, became one of the largest independent oil firms in the world by 1981. Then he shifted his focus to shareholder advocacy, attacking rivals that he felt were shafting investors, and making unsolicited bids for Unocal, Phillips, Gulf Oil and others.
Many of his bids weren't successful, but he usually walked away a much richer man - besides having improved management's focus. Today, Pickens runs a multibillion-dollar commodities hedge fund out of Dallas. And now he's making the biggest bets of his career. So let us look at how Pickens intends to profit now...
T. Boone Pickens & The Peak Oil Theory
T. Boone Pickens is a proponent of the much-debated peak oil theory. He believes the oil price shocks we have experienced this year are only the beginning. He sees much tighter supplies in the future.
"America is in a hole," he told CNBC last month, "and it's getting deeper every day. We import 70% of our oil at a cost of $700 billion a year - four times the annual cost of the Iraq war. I've been an oilman all my life, but this is one emergency we can't drill our way out of. But if we create a new renewable energy network, we can break our addiction to foreign oil."
"In 10 years, $5 trillion goes out of the country for oil. It's nuts. It's the greatest transfer of wealth from one area to another in the history of the world."
Instead, he wants this money to stay in America - with a good portion of it going into his pocket.
His plan is simple: Cars need to be converted from crude oil and gasoline to compressed natural gas as soon as possible. And to replace the natural gas used in electrical generation, he advocates a giant wind farm stretching from Texas to North Dakota.
"America is the Saudi Arabia of wind," he likes to say.
T. Boone Pickens Has An Energy Plan to Save Our Economy
To be sure, Pickens has an energy plan to save our economy - he is building the largest wind farm in America. It will generate as much clean electricity as two nuclear plants, and, best of all, with little negative effect on the environment.
His commitment to clean fuels has impressed the environmental community, prompting the Sierra Club's director Carl Pope to say, "To put it plainly, T. Boone Pickens is out to save America."
But don't believe that he's lost his focus on making money because he is in his 80s. "Money! First thing, it's about money," Pickens told Fast Company magazine in June.
"Of course, I'm also a good environmentalist. I can pass the saliva test. But I'm not going to go do a 4,000-megawatt wind farm for the environment first and money second. I'd rather go give money someplace else. You're talking about $10 billion." And what kind of return does he expect? "A minimum of 15%; it'll probably be closer to 25%."
Last year he also brought Clean Energy Fuels (Nasdaq: CLNE) public - a company that markets natural gas for vehicles. It designs, builds, finances and operates 170 fueling stations and supplies compressed natural gas and liquefied natural gas. But what it doesn't have is profits.
With Mr. Pickens owning 16 million shares, don't expect that to slow this company down. Management is growing revenues at a rate of 25% per year.
I don't have much taste for the shares of any company without positive earnings, such as Clean Energy Fuels. But the current downturn in natural gas prices has hit stocks in this sector hard. Today a number of these gas stocks are cheap for the first time in over a year.
Natural Gas Stocks & Wind Power - The Pickens Plan
Two firms that specialize in natural gas exploration and production that have recently pulled back from elevated highs include:
- Chesapeake Energy (NYSE: CHK), with a forward price-to-earnings ratio (P/E) of only 9.
- Devon Energy (NYSE: DVN), which has a P/E of 9.
In terms of wind power:
- General Electric (NYSE: GE) is one of the world's largest manufacturers of wind turbines. With over 8,400 installed worldwide, it provides power generation capacity of more than 11,300 megawatts. GE currently trades at a very attractive P/E ratio of 13.5 and a 4% dividend yield. It pays you to hold its stock.
- FPL Group (NYSE: FPL) is the diversified utility and power generator that grew out of Florida Power and Light. It leads the nation in the development and operation of wind power. With more than 45 facilities located in 15 states, it has a generating capacity of more than 4,000 megawatts of electricity.
This represents approximately 35% of the nation's wind-generated power.
There are many ways that our country is working to free itself from its energy shackles, and I don't know if America will embrace the Pickens Plan above all others.
But T. Boone Pickens has a history of being in the right place at the right time, and profiting handsomely. By following in his footsteps and investing like him, you stand to make a bundle as well.
Floyd G. Brown
Today's Investment U Crib Sheet
There's no shortage of news coming out from producers of wind power and renewable energy...
- General Electric (NYSE: GE) and Spanish company Acciona SA (MCE: ANA) reported this week that they were partnering in a 180-megawatt wind farm in the Dakotas. The $381 million project will span over 14,000 acres.
- The United States ranks second with installed wind capacity of 19,600 megawatt (MW) compared to Germany's 23,000 MW. But new figures from The American Wind Energy Association report that we produce more power from our capacity due to better locations and stronger winds - making the United States the world leader in wind power generation.
- Bluewater wind recently received approval to build a wind farm 11 miles off the coast of Delaware. Construction is expected to start in 2010, and be completed by 2012. The project will be the first offshore wind farm in the United States, generating up to 600 MW.
- Texas agreed to spend nearly $5 billion of electrical transmission lines to connect 18,456 MW of wind power from "wind corridor" west to their customers in populated east. Texas is currently reviewing connection line requests for an estimated 54,000 MW of wind power to be built.
One Megawatt (MW) of power is enough to power 250 to 300 average American homes with an annual power consuption of 10,656 kwh for a year.