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How this top US fund is playing the shale boom in 7 stocks

on Apr 17, 2014 at 12:26

Atwood Oceanics

We bought Atwood Oceanics, a small cap offshore contract driller, in August 2011. In addition to the nine units owned at the time of purchase – Atwood was building six new high specification rigs, set to be delivered by 2014.

We felt these new rigs could nearly double the company’s earnings, assuming all are employed at attractive day rates. In this regard, the industry is seeing much higher rates for modern, efficient, high specifications drilling units – such as the ones Atwood had on order. Additionally, as a high quality small cap driller, Atwood is a possible acquisition target in an industry where consolidation has long been a fact of life.

LyondellBasell Industries

One of the world’s largest chemical, plastics and refining companies – LyondellBasell Industries specialises in olefin and polyolefin production.

With most of its operations located in North America, it has a cost advantage due to its ability to use low cost natural gas, as opposed to overseas competitors being forced to use much more oil. Despite low input costs, prices of the company’s ethylene and polyethylene output products are set by the high-cost producers worldwide. Therefore, it enjoys a margin advantage relative to its global peers.

Despite this, it trades at a discount to peers. The company has an investment grade balance sheet and a very cash-rich business model. It has a shareholder friendly business model, which has returned 80% of free cash flow over the last two years in the form of regular and special dividends.

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