Stock Quotes in this Article: CPN, ECA, EXC, NRG, VLO

 BALTIMORE (Stockpickr) -- Oil may have sold off hard recently, but billionaire investor T. Boone Pickens still loves energy stocks. After all, he made his fortune by investing in energy, so he knows a thing or two about picking winners among the oil, natural gas and power producers.

The octogenarian billionaire founded Mesa Petroleum in 1956 and BP Capital Management 40 years later, but he’s most known to Main Street for his Pickens Plan, an energy plan that promotes using wind turbine farms to generate electricity, limiting the U.S.’s need for foreign oil. But while most people focus on Pickens’ politics, we’re more concerned with his portfolio.

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After all, his $174 million energy hedge fund, BP Capital, is one of the most well-known energy funds in the world -- if only for its high profile founder.

BP Capital is a fairly concentrated fund, with only 20 stock positions spread across a number of different industries, all connected to the energy sector. But of those 20 positions, five are brand new holdings that BP Capital added to its portfolio in the last quarter. Today, we’ll take a closer look at those five energy names that Pickens and company deemed worthy of buying up right now. To do that, we’ve got to crack BP’s 13F filings.

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Institutional investors with more than $100 million in assets are required to file a 13F -- a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F. By comparing one quarter's filing to another, we can see how any single fund manager is moving their portfolio around -- and what investments are faring the best for them. More important, we can figure out what names they like the most right now.

With that, here’s a look at T. Boone Pickens’ five favorite stocks.

EnCana

Canadian natural gas exploration and production firm EnCana (ECA) is having a strong year in 2012. While the S&P 500 has climbed around 4% so far this year, EnCana has driven performance of more than double that, up 8.35% since the first trading day of January. The firm owns reserves of approximately 14.2 trillion cubic feet of natural gas equivalent spread throughout North America, positioning that makes EnCana one of the biggest nat gas names in the industry.

BP Capital Management bought 936,000 shares of EnCana in the most recent quarter, an $18.4 million position that makes ECA a full 10.5% position in Pickens’ portfolio.

Nat gas has been under a lot of pressure in the last several years, with prices for the energy commodity scraping along the bottom of a multi-year range since prices topped back in 2008. That’s been a problem for EnCana, since the firm needs prices to be economically viable to justify drilling. To counter their woes, ECA has been selling off some assets to generate cash, a practice that isn’t ideal at these price levels.

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Ultimately, if crude oil stays at the higher end of its range, some substitution from oil to nat gas is likely to occur, and investors like Boone Pickens are counting on it.

To make up for the favor that oil has had over gas lately, ECA has been focusing its drilling on liquids-rich properties that provide bigger revenues for every hour that drilling crews are onsite. Until nat gas rebounds, that’s a good strategy for EnCana and its investors.

Income investors should pay special attention -- the firm’s 4% dividend yield is a hefty payout, even for the energy sector.

Encana also shows up in SAC Capital's portfolio as of the most recently reported quarter.

Exelon

Power stock Exelon (EXC) weighs in as the biggest power retailer in the U.S., with capacity to serves loads of 190 terawatt hours. The firm owns regulated power utilities as well as unregulated merchant generation assets with a combined 34 gigawatts of capacity spread across seven states. The acquisition of Constellation Energy this year adds a big regulated utility in the form of Baltimore Gas & Electric (your author’s electric utility), bringing the total company-wide customer list to 6.6 million households.

The majority of Exelon’s power generation is nuclear, a factor that gives the firm access to extremely low cost capacity (around $15 per megawatt-hour), even if political hurdles prove challenging. In a big way, those challenges are a good thing for Exelon -- it means that barriers to entry are huge for other firms that want to build nuclear plants across the U.S.

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Not surprisingly, Exelon’s major regulated utility operations make it a dividend powerhouse as well. Because regulated utilities have relatively consistent, predictable revenue streams, they make ideal income investments -- even if wholesale power generation adds some volatility to earnings. The firm’s yield currently weighs in at 5.6%, a hefty payout for any dividend firm, especially right now.

Pickens and company added 290,000 shares of Exelon to the BP Capital portfolio last quarter, taking on a $5 million stake in the firm.

Valero Energy

Of course, just because BP Capital is natgas and alternative energy-heavy doesn’t mean that Boon Pickens’ fund is eschewing traditional oil firms. His fund picked up 188,000 shares of Valero Energy (VLO) last quarter, building up a $5 million stake in the country’s largest independent oil refiner.

Valero has the capacity to process more than 2.8 million barrels of crude per day through its 14 refineries, in addition to a massive ethanol business and a 1,000-unit gas station business.

In short, Valero is an integrated oil company without the most profitable part: the exploration and production arm. Because VLO must rely on crude suppliers, it’s only able to shave off thin margins for itself through its refining operations. While operating a gas station chain does give Valero some ability to widen its margins (it can convert crude to retail gasoline prices, rather than wholesale gas prices), margins are still quite thin.

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One advantage for Valero is the fact that its refining infrastructure is more advanced than most peers, a fact that gives VLO the ability to take in lower-quality crude for its gasoline. That gives the firm added flexibility when oil prices make profitability difficult, but the advantages are small. Instead, improved worldwide pipeline networks should be a major profitability booster for VLO, as regional pricing differences even out more and the firm can collect a bigger profit per gallon from its low cost Gulf Coast refineries.

Valero is also one of the top holdings at Ray Dalio's Bridewater Associates as of the most recently reported quarter.

NRG Energy

Independent power producer NRG Energy (NRG) owns 25.5 GW of generation capacity spread across three countries, making it one of the larger names in the power business. With Exelon, it’s a double-down on the power business for Boone Pickens and BP Capital. The hedge fund added 305,000 shares of NRG to its portfolio in the most recent quarter, building up a $4.8 million position in the stock.

Ironically, NRG fended off a hostile takeover attempt by Exelon back in 2008. So even though the two companies never merged, BP Capital bought both at the same time anyway.

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NRG isn’t just a big power producer outright -- it’s also a major name in alternative energy generation. The company owns three major solar generation facilities, four wind farms, and a number of smaller solar generation assets, positioning that makes NRG one of the league leaders in green power. While traditional generation still makes up the majority of NRG’s generation, the firm is spending considerable capital on green power, and it’s getting tax advantages and rate contracts that effectively pay for those investments instantly.

NRG is also a major power retailer, serving more than 2 million customers directly with their power needs. While that retail exposure takes some of the cyclical pressures off of NRG’s income statement, the firm still doesn’t benefit from the consistency of a more regulated name. And the firm’s lack of a dividend payout is proof of that.

Calpine

Last up is Calpine (CPN), another firm that’s tangled in the web of unrequited M&A within BP Capital’s portfolio. Back in 2008, NRG Energy made an unsolicited bid to buy CPN for $22.70 per share, an offer that’s probably looking a whole lot more attractive now that Calpine sells for 2012 prices in the low $16 range. Calpine is another power generation firm, albeit one that jives more directly with the Pickens Plan than most – it operates modern natural gas-powered generation turbines with 28 GW of capacity between them.

Calpine’s exposure to natural gas-fired plants means that the firm benefits more than most when natgas is sitting at low levels. Unfortunately for Calpine, low nat gas prices tend to go hand-in-hand with low wholesale power prices, which means that the firm’s margins haven’t expanded as many investors had hoped. If the company can get a handle on some of its costs – namely its debt load – it’ll look like a better bet for 2012.

BP Capital bought 290,000 shares of CPN last quarter, bringing on a $5 million stake in the company.

To see the rest of T. Boone Pickens’ plays check out the T. Boone Pickens – BP Capital Portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.