Sweet 16 Update - June 5

Sweet 16 Update - June 5

Postby dan_s » Sat Jun 05, 2021 7:11 pm

The Sweet 16 gained 20.79% during the week ending June 4th. It is now up 112.12% YTD. < This is the best week EVER for the Sweet 16 since EPG was founded in 2006. The S&P 500 Index gained 0.68% during the week and is now up 12.61% YTD.

The Sweet 16 is still trading at a 34% discount to my Fair Value Estimates, which are based on WTI oil averaging $65/bbl after June, 2021 and ngas averaging $3.05 in 2H 2021 and $2.75 after this year. WTI closed at $69.26/bbl on Friday and moved higher after hours.

The Sweet 16 is still trading at just 3.8 X my operating cash flow per share forecasts for the group, that is an extremely low multiple for a group of this quality. A reasonable valuation multiple for companies of this quality is somewhere in a range of 6X to 10X operating CFPS with strong balance sheets, lots of FCF and lots of running room deserving the high end of the range.

As we move deeper into the year and the companies' actual results meet or exceed my forecast assumptions, which I expect them to do easily, my valuations will increase simply because I will increase the multiples of operating cash flow used to value them.

ALL OF THE SWEET 16 ARE GENERATING STRONG FREE CASH FLOW FROM OPERATIONS. This is now the KEY STAT for the Wall Street Gang.

Callon Petroleum (CPE) is leading the pack, up 262.92% YTD and Laredo Petroleum (LPI) is now up 231.42% YTD after drawing a lot of attention by the big announcement they made on May 9. Both companies were grossly oversold during 2020, so they simply had to survive to be doubles for us. With oil now firmly over $60/bbl they are in great shape and still have plenty of upside for us. When the transactions announced by Laredo close, my valuation is likely to go over $100/share.

Even our two worst preforming stocks, Comstock Resources (CRK) up 36.16% YTD and Pioneer Natural Resources (PXD) up 49.53% YTD, are crushing the S&P 500 Index.

The "gassers" (AR, CRK, EQT and RRC) normally don't get much "love" from investors during Q2 just because it is the lowest demand quarter for the year for ngas, but it is becoming more and more clear that the ngas and NGL markets are going to be extremely tight in 2H 2021. AR and EQT are still trading at deep discounts to book value which is insane. I recently increased my valuation of AR to $24.00 and I need to take a hard look at EQT this coming week.

As I recently posted here, I like the Cimarex Energy (XEC) merger into Cabot Oil & Gas (COG). My valuation of XEC is now $109.00. A lot of the Wall Street Gang expressed negative opinions on the deal, but I think they are going to be proven wrong once again. These are the same analysts that drove CPE down to $5.10 because they didn't like the Company's merger with Carrizo. CPE closed at $47.76 on June 4.

90% of the success of any upstream merger depends on where commodity prices go the year after the merger. Where do you think oil, natural gas and NGL prices will be in 2022?

I highly recommend that all of you attend our webinar on Monday, June 7 that is being hosted by Talos Energy (TALO). This mid-cap has HUGE upside in two world class oil discoveries in the Gulf of Mexico. You can register on the EPG home page. The webinar starts at 2PM CT on Monday.

My updated Sweet 16 spreadsheet with my valuations for each stock will be posted to the EPG website on Sunday.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 25565
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - June 5

Postby dan_s » Sat Jun 05, 2021 7:13 pm

From Trading Economics June 4, 2021 after the markets closed.

"Crude oil futures extended the weekly gain to almost 5% on Friday to trade above $69.40 a barrel for the first time since October 2018 and following a 4.3% gain in the previous week amid signs of strong post-pandemic economic recovery. On the supply side, API reported a fall of 5.36 million barrels in US stockpiles last week and EIA data showed a bigger-than-expected 5.08 million drop. Meanwhile, the Saudi Arabian energy minister said it would be premature to talk about potential overheating in the global oil market before seeing higher demand. Early this week, OPEC+ agreed to gradually ease supply curbs through July, signaling the ongoing strengthening of market fundamentals."
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 25565
Joined: Fri Apr 23, 2010 8:22 am


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