Sweet 16 Update - June 14

[dan_s]

The Sweet 16 Growth Portfolio spreadsheet has been updated on the website:
> Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts,
> Tab 2 shows our my Value Estimate compared to First Call's Price Target for each company as of 6-14-2014

The Sweet 16 is now up 27% YTD, compared to the S&P 500 Index which is up 4.8%.

The next edition of The View From Houston comes out on Monday, so I spent the last two days checking my forecast models for each company. Q2 "Adjusted Earnings" will be solid across the board and the second half results are going to be GREAT if oil and gas prices hold anywhere near current levels.

Keep in mind that rising commodity prices will cause negative mark-to-market adjustments on hedges, so "GAAP" or "Reported Earnings" might be shocking. This makes it more important than ever to ignore these non-cash P&L adjustments and focus on cash flow per share. Just remember that "Adjusted Earnings" are what are compared to First Call EPS forecasts.

Continental Resources (CLR) went over my Fair Value Estimate on Friday, so I took an extra hard look at my forecast. I raised my valuation to $156.70. I am now using $93/bbl for the realized oil price in ND during the second half of this year and there is a good chance the differential shrinks in Q3 like it did last year. Plus, CLR might deserve a much higher multiple than the 8X CFPS that I am using since they have 20% production growth locked in for years and SCOOP is looking better and better.

Newfield Exploration (NFX) will be added to the Sweet 16 on July 1 because of what they have in the SCOOP play. See our recent profile under the Watch List Tab. See Monday's newsletter for which company is moving out of the Sweet 16 to make room. [Gastar (GST) also has some exposure to SCOOP. See Russ Porter's comments in the video we sent out last week.]

OAS and WLL have the potential to make big moves during the 2nd half. 3rd quarters will be fantastic for these two.

DVN looks like a $100 stock to me. An analyst at B of A agrees.

I took my valuation of RRC down a couple dollars because of the stock offering, but the fundamentals remain very strong. RRC is the #1 company in the Marcellus Shale.

XEC added to S&P 500 last week.

See newsletter for more on all of our model portfolio companies.