T. Boone Pickens, like Carl Icahn, is an investment legend from the 1970s and '80s, when he was a buyout king (oftentimes hostile). He has transformed himself into one of the most successful hedge fund investors ever.

It's hard enough returning even 10% a year when your assets under management are large (say, more than $100 million), but Pickens returned more than 300% in 2005 on holdings over $2 billion. He made $1.4 billion for himself in 2005 as a result. In 2006, Pickens was up over 26%.

(To see Pickens' holdings, check out his page on Stockpickr.)

Pickens is a believer in "peak oil theory," the idea that the planet has already reached its peak oil-production capabilities and that all the oil supplies will become depleted fairly soon. Consequently, this theory is a bet that the price of oil will go higher and higher, as will the stocks involved in drilling for oil and the stocks looking for energy alternatives.

Pickens, along with one of my favorite deep value funds Al Frank Asset Management, is a shareholder in GlobalSantaFe ( GSF), which provides offshore drilling services worldwide.

Analysts expect the company to double its earnings to $7.13 a share in 2007, meaning it's trading at just eight times earnings and about five times cash flows currently. With EBITDA (earnings before interest, taxes, depreciation and amortization) over $1 billion and net debt of only $220 million, it's an excellent candidate to either get taken over or leverage up and buy back shares. If oil bottoms near $50 a barrel -- as Pickens expects it to, according to a recent interview with Playboy magazine -- GlobalSantaFe will recover handsomely, as analysts scramble to reverse recent downgrades.

Given his belief in $100 oil, Pickens is looking for plays in energy alternatives. So he invests in several coal companies, including Massey Energy ( MEE) and Foundation Coal ( FCL).

Coal companies have largely been misunderstood by analysts in the past year. Many analysts look at the rising price of oil and coal, and then look at a coal company and say, "Well, it has all of this coal underground, so the stock should be worth X-dollars." However, that kind of logic doesn't take into account the fact that oil is required to get the coal out of the ground. So the cost of extracting the coal has become greater.

That said, it's worth taking a look at Massey Energy, which trades at just 7.7 times cash flows. Analysts expect the company's earnings to go from 25 cents a share in 2006 to $1.46 a share in 2007. Activist fund Third Point is also a shareholder in Massey Energy.

Pickens also owns ConocoPhillips ( COP), which trades at a price-to-earnings ratio of just 7 and 3.6 times cash flows. With a $132 billion market cap, it's probably unreasonable to expect ConocoPhillips to be acquired, but at these levels, there is a great margin of safety. And Pickens is not the only one who believes so. Looking at ConocoPhillips' page on Stockpickr, you can see the full list of quality hedge funds, mutual funds and other investors who own the stock.

Pickens' portfolio can be thought of as a "peak oil index." To check out his other holdings, click here.

Stockpickr tip of the day: Another proponent of peak oil theory is Peter Thiel, the founder of PayPal. Thiel has gone from running PayPal, which he sold for $1.5 billion to eBay ( EBAY), to running his fund Clarium Capital. According to MARHedge and Absolute Return, two hedge fund trade magazines, Clarium was the most successful global macro fund of 2006. Thiel's portfolio is also worth looking at to see which positions might do well in a peak oil world.

Come discuss whether you believe in the peak oil theory.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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