Investment firm Dodge & Cox disclosed earlier this week it upped its stake in Ovintiv Inc. (OVV, Financial) by 25.34%.
Founded in 1930, the San Francisco-based investment firm takes a classic long-term value approach, steering clear of popular companies that trade at premium prices. Rather, its managers prefer to conduct in-depth research into companies trading at low valuations that have promising earnings and cash flow growth prospects.
Having trimmed the stake over the past two quarters, GuruFocus Real-Time Picks, a Premium feature based on 13D, 13G and Form 4 filings, show the firm invested in 5.48 million shares of the energy company on March 31, which had an impact of 0.14% on the equity portfolio. The stock traded for an average price of $36.08 per share on the day of the transaction.
Dodge & Cox now holds 27.14 million shares total, accounting for 0.67% of the equity portfolio. GuruFocus estimates the firm has gained 41.61% on the investment, which was established in the third quarter of 2019.
About Ovintiv
Founded in 2002, the company was previously headquartered in Canada and known as Encana before relocating and changing its name in 2020. Now based in Denver, the oil and gas producer owns key assets in the Permian Basin, Eagle Ford, Montney Formation and Duvernay and Bakken Shales.
Ovintiv is organized in four segments, with USA Operations contributing the largest portion of revenue at 44.6% in 2022.
Recent acquisition
The company’s operations in the Permian Basin of West Texas are about to expand even further.
On April 3, Ovintiv announced it is acquiring 65,000 acres of untapped oil and gas assets from EnCap Investments in a deal valued at $4.3 billion.
According to the terms of the cash-and-stock agreement, the company will pay $3.12 billion in cash and 32.6 million shares. To help finance the transaction, Ovintiv is also selling its assets in the Bakken Shale play of North Dakota to Grayson Mill Bakken LLC for $825 million.
The purchase will increase Ovintiv’s operations by more than 1,000 well locations in Andrews and Martin counties, an area where the company had previously indicated it has substantial growth plans.
In a statement, President and CEO Brendan McCracken commented on the “unique undeveloped asset.”
"Located in some of the best rock in the Permian, these assets have demonstrated leading well performance and are a natural fit with our existing Martin County acreage,” he said. “The acquisition checks all the boxes on our disciplined durable returns strategy – it will be immediately and long-term accretive across all key financial metrics, the acreage is in an area where we have a competitive operating advantage, and it significantly increases our premium Permian well inventory.”
Further, he noted the acquisition is expected to increase the company’s free cash flow per share and enhance shareholder returns.
Financial update
Ovintiv released its fourth-quarter and full-year 2022 results on Feb. 27.
For the three months ended Dec. 31, the company posted net income of $1.33 billion, or earnings of $5.30 per share, on $3.21 billion in revenue. Both were down slightly from the prior-year quarter.
As for the year, Ovintiv recorded $3.64 billion in net income and $12.46 billion in revenue, both of which were up from a year ago.
Its earnings results for the first quarter of 2023 are expected to be released sometime in May.
Valuation
Ovintiv has a $9.67 billion market cap; its shares were trading around $39.53 on Tuesday with a price-earnings ratio of 2.80, a price-book ratio of 1.26 and a price-sales ratio of 0.80.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 80 out of 100, the GF Score indicates the company is likely to have average performance going forward. While it raked in high ratings for profitability, momentum and GF Value, the growth and financial strength ranks were more moderate.
Further, the company has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Guru interest
Dodge & Cox is by far the company’s largest guru shareholder with an 11.10% stake.
Other gurus with notable holdings of the stock include Hotchkis & Wiley, Daniel Loeb (Trades, Portfolio), the Smead Value Fund (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
Portfolio composition and performance
Dodge & Cox’s $145.82 billion 13F equity portfolio was composed of 188 stocks as of the end of the fourth quarter of 2022. The financial services sector had the largest representation at 23.40%, followed by the health care and technology spaces. Energy stocks made up only 9.28% of the portfolio.
Other energy companies the firm held as of Dec. 31 included Occidental Petroleum Corp. (OXY, Financial), ConocoPhillips (COP, Financial), Suncor Energy Inc. (SU, Financial), Williams Companies Inc. (WMB, Financial) and Baker Hughes Co. (BKR, Financial).
GuruFocus data shows Dodge & Cox’s Stock Fund returned -7.22% in 2022, outperforming the S&P 500’s -18.11% return.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
