Top Picks from Global Resources

12/26/2013 8:00 am EST

Focus: ENERGY

Tom Armistead, of Streetwise Reports' The Energy Report, recently interviewed Evan Smith, co-portfolio manager of US Global Investors' Global Resources Fund. Here are some of the highlights from Smith.

At US Global Investors' Global Resources Fund (PSPFX:US) we take a diversified approach to natural resources investing: energy, food, timber, base metals, precious metals, and chemicals.

We're attracted to opportunities like Sanchez Energy Corp. (SN) and Bellatrix Exploration Ltd. (TSX:BXE).

Sanchez went public just a couple years ago. It had a decent-sized position in the Eagle Ford, which it has grown to over 125,000 acres—pretty sizeable for a small-cap. Sanchez was producing 600 barrels of oil equivalent per day (600 boe/d); now it's over 12,000 boe/d and should be around 15,000-17,000 by the end of the year.

When it became public, its acreage was in the Eagle Ford, but not all the Eagle Ford acreage is the same. Sanchez was a little on-the-fringe, not considered as attractive as some plays. But the company has shown that it's very competitive and that the wells have performed better than expected.

You've got a high growth opportunity here, with a relatively large acreage base, for which the market's only paying about 3.5 times cash flow.

Bellatrix Exploration is a Canadian company with just under $1B in market cap. The stock has done very well this year, but it continues to trade at a discounted valuation, versus its peers, given its level of growth.

It's trading at 3.5 times cash flow. Cash flow is probably going to grow 60%-plus next year. I've been impressed with the economics of the wells.

Relative to its peers, the company should be one of the faster growers over the next couple of years, as far as cash flow per share. Yet its recycle ratios, which are a measure of capital efficiency, are some of the highest of the peer group.

To combine high growth, with high capital efficiency, usually drives returns higher and creates value for shareholders. Bellatrix has done a good job of that in 2013, and I think that should continue through 2014.

Pioneer Natural Resources Co. (PXD) is trading at around $180 per share, after touching $220 just a few weeks ago.

It's had a nice, healthy pullback, but if our assumptions are correct, the estimated net asset value could be $350 per share, or $400 per share, for Pioneer Natural Resources.

Theoretically, there's a double still in the stock. When will that be realized? It's hard to say. What would take it take for it to happen? It could happen any time.

We remain constructive on Pioneer. That's been a holding for us for some time. Despite some sizeable gains, I think there's a good opportunity for the shares.

The supermajors have largely missed the North American shale boom, and they've made ill-timed acquisitions in the past. The Permian seems to be getting better.

Pioneer Natural Resources released some really amazing results recently, from its wells in the middle of the basin. Some wells measured over 3,600 bbl/d in initial production, a record for the basin. This would be a likely target for a major or national oil company.

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