Cheniere Energy Inc (LNG)

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Should You Gas Up With Cheniere Energy?
Jun. 26, 2015 2:38 PM ET

Hedge funds have major holdings in the company.
Export market growing and infrastructure coming online.
Political, economic, and social environment all work in favor of the company.

By Andrew Sebastian

Several hedge funds had major stakes in the shares of Cheniere Energy (NYSEMKT:LNG) as of their latest filings. Viking Global became the largest holder of LNG shares after the fund ramped up its position by 56% to a value of $1.2 billion, taking up a large chunk of its portfolio at 4.6%. Seth Klarman's Baupost Group had an unchanged billion dollar stake in LNG that was almost 20% of its portfolio at 18%. Lone Pine Capital was the third largest holder of LNG among the funds with a $620 million stake even after reducing it by 10%. Like Viking - Kensico Capital, Point State Capital, and Steadfast Capital all increased their stakes in LNG. Kensico's increase was modest at 1% and the fund now has a $612 million stake. Point State's increase was more substantial at 140% to a value of $514.6 million, and Steadfast's was significant as well at 51% to a value of $427.5 million.

Insider Monkey tracks hedge funds like Viking Global and Baupost Group because our research has shown that their stock picks historically managed to generate alpha - even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be conservative and our research still showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks' monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 142%, outperforming the S&P 500 ETF by nearly 84 percentage points (see more details here). LNG is a larger cap stock but it is a popular pick among hedge funds, so it is worth looking at to see if it can deliver outsize returns going forward.

Rounding out the top ten holders of LNG among hedge funds - Soroban Capital, Anchorage Advisors, Senator Investment Group, and Blue Ride Capital had positions in LNG ranging from Soroban's $404 million holding to Blue Ridge's $309.6 million one. The top ten hedge funds held over 35% of LNG's shares outstanding, making hedge funds in aggregate heavily tied to LNG's prospects and share price. In addition to the large holders, close to twenty funds initiated long positions in LNG as of their latest filings; Brookside Capital, owned by Bain Capital, was one of those funds and it built a new $178 million position. Not all funds maintained their positions; however, as close to twenty funds exited their LNG stakes. Still, close to 100 funds had long positions in LNG and hedge funds were largely bullish on LNG.

The bullish stance by hedge funds is likely tied to the coming exports of liquefied natural gas - LNG's business - outside of the U.S. The increased extraction and muted price of natural gas, combined with the economic and political realities around the world, have made conditions ripe for export. Russia's conflict with Ukraine and increasingly aggressive stance in Europe have increased the calls for exporting natural gas to Europe in order to reduce the continent's reliance on Russia for its energy needs. China, India, and other energy hungry countries in Asia looking for cheaper and cleaner energy alternatives are prime markets for natural gas companies in the U.S. The prices of natural gas in Europe and Asia are relatively higher than in the U.S., so if LNG can export efficiently, it can be a boon to the company's bottom line. Mexico is also becoming a big market for U.S. natural gas as it has realized decreasing production but increasing need for natural gas. The price of natural gas has been at historic lows due to supply far outweighing demand, but the number of markets to which LNG can send natural gas is growing and the price should rise in the coming years as market forces come more into equilibrium.

The sky is the limit for LNG as it will be the first exporter of liquefied natural gas in the U.S. with the completion of its facility at the end of the year. It seems that many hedge funds recognize this and have built sizeable positions in the company. The trends - political, economic, social - all work in the favor of LNG, and it seems that the company has a bright future and following hedge funds into LNG will likely be something an investor does not regret.


http://seekingalpha.com/article/3286895-should-you-gas-up-with-cheniere-energy?auth_param=728f1:1aor73p:1226637a3be190a4905b13dc96c5c24d&uprof=44