We’re buying 50 shares of Pioneer Natural Resources (PXD) at roughly $281.30 each. Following Tuesday’s trade, the portfolio will own 150 shares of PXD, increasing its weighting to 1.39% from 0.94%. We’re picking up some additional shares of Pioneer Natural Resources as we are increasingly of the view that the combination of sanctions on Russian oil over the Ukraine war and the reopening of China — slow as it may be due its zero-Covid policy — provide a setup of high for longer energy prices. Even if the Russia-Ukraine conflict were to be resolved, which would be desirable from a humanitarian standpoint and could bring down energy costs, we believe that demand from China, the U.S., and Europe will provide enough support to keep energy prices elevated as the simple reality is that we’re not pumping as much as we need. While some of the geopolitical premium would be sucked out should a ceasefire be agreed upon, we must also remember that Pioneer’s breakeven on West Texas Intermediate crude is below $40 per barrel. This means that fundamentally, there is an incredible amount of cushion built in to the market right now that will allow management to achieve shareholder return initiatives no matter what happens in Ukraine. WTI on Tuesday was trading near $120 per barrel. We find the energy complex attractive in general due to the supply-demand dynamic. However, we think Pioneer is uniquely positioned to be an outsized beneficiary thanks to management putting zero hedges on the book this year. That means they have not capped the upside to realized prices. Note that in the first quarter, released before we took our position on May 16 , management declared a $7.38 per share base + variable dividend. That amounts to an annualized yield of roughly 10.5% at current levels. Pioneer returned 88% of free cash flow to shareholders when including share repurchase activity. Should energy prices hold at current levels or increase from here, we would expect equal if not higher payouts going forward thanks to the lack of hedges. Lastly, we do acknowledge that this PXD purchase is a violation of our cost basis. However, at a less than 1% weighting in the portfolio before the trade, we think we have plenty of room to add further should we see subsequent weakness in the stock. Furthermore, cost basis aside, we still find shares highly attractive at current levels given they’re trading at 8.6x forward earnings — and again, currently yield north of 10% even before accounting for the benefits to investors of the company’s share repurchases. (Jim Cramer’s Charitable Trust is long PXD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
