Sweet 16 Update - July 6

[dan_s]

Sweet 16 Growth Portfolio spreadsheet has been updated and posted to the website:
> Tab 1 is a summary of the EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 7-6-2014

The Sweet 16 is up 32.9% YTD compared to the S&P 500 Index that is up 7.4% YTD.

This year's additions are CRZO, DVN, MTDR, NFX (on July 1) and SN

The Sweet 16 is heavily weighted to companies focused on growing their liquids production. Even our two "gassers" (RRC and UNT) are now focused on increasing their liquids production. I HIGHLY RECOMMEND THAT ALL OF YOU KEEP YOUR PORTFOLIOS HEAVILY WEIGHTED TO OIL. The outlook for natural gas has improved, but it is still sub-economic to drill for gas except in the Sweet Spots of a few shale plays. Lots of "associated gas" is coming on-line in the oil shale plays, especially in the Eagle Ford.

Bonanza Creek (BCEI) pulled back a bit last week after a nice move up the week before. There is some concern by the industry that Colorado will pass legislation to allow local communities to decide if they will allow fracking in their county. That could have an impact on those companies focused on the Niobrara.

Carrizo Oil & Gas (CRZO) moved over my previous valuation, so I took a very hard look at it on Friday. I decided it was justified to raise my multiple to 7X CFPS. I am expecting them to report strong production growth quarter-after-quarter at least through the end of 2015. Higher oil and NGL prices also helped raise my Fair Value Estimate to $81.25/share. On June 24: Imperial Capital raised its price target for Carrizo Oil & Gas shares to $82 citing the company's risked net asset value and keeps an Outperform rating on the stock. IF CARRIZO INCREASES THEIR PRODUCTION GUIDANCE MY VALUATION COULD GO A LOT HIGHER.

Continental Resources (CLR) is up 239% since being added to the Sweet 16 on 10-1-2010. It is getting very close to my valuation. A strong 2nd quarter and more info on their SCOOP play could cause my valuation to go higher.

Devon Energy (DVN) looks even better to me after the $2.3 billion asset sale to Linn Energy (LINE). LINE now looks rock solid to me. Read our recent profile on LINE, which can be found under the MLP tab. If commodity prices hold near current levels, DVN is worth AT LEAST $100/share.

NFX will move a lot higher when they announce a sale of their China assets. Note that NFX also has a big stake in CLR's SCOOP play in Oklahoma.

My top tier for 2nd half: XEC, DVN, NFX, OAS, SN, SM, UNT and WLL

Gulfport Energy (GPOR)'s 2nd quarter report is very important. If they can convince the market that they are on-track to an exit rate over 50,000 boepd, the Wall Street gang should jump back in. My valuation is based on the company's revised guidance. Also, note that NGL prices are drifting higher. GPOR produces a lot of NGLs.

SM Energy (SM) is clearly on-track to generate over $22 cash flow per share this year. IMO there is nothing to justify it trading at less than 4X CFPS. Other analysts seem to be coming around on this one. First Call's price target moves up each week and is now $93.13. I think SM is easily a $100 by year-end.

All of the Sweet 16 will report strong "Adjusted Earnings Per Share" for the 2nd quarter. Remember that GAAP EPS include those stupid mark-to-market adjustments on hedges, so don't panic when some of them report a loss. Whenever commodity prices (oil and gas) are higher at the end of the quarter, the mark-to-market adjustment on derivatives will be negative. Just remember that "Adjusted EPS" is what you need to compare to First Call's EPS estimate. CFPS is much more important than EPS.

[mdwitte]

...really appreciate your analysis, Dan! I switched some of my CLR to SM last week...CLR was "almost" a 10-bagger for me...9x or so...but you convinced me that SM had more promise, so sold half of the CLR...

[dan_s]

DVN and XEC also look very attractive to me at the current prices. Both are rock solid.

[dan_s]

I just received an updated report on Sanchez Energy (SN). They rate it a BUY with a $44 price target.

I thought their EPS and CFPS forecasts were too low until I saw that they are still using $90/bbl for WTI in a forecast periods. This is a reminder that most analysts are required to use their firm's "official" commodity price forecasts in all models. Most of them are outdated. I see very little chance of us seeing WTI near $90 again.

[dan_s]

Citigroup just raised their price target on Devon Energy (DVN) to $96/share.

http://www.fool.com/investing/general/2 ... er-20.aspx

[dan_s]

From RBC Capital:

Concho Resources Inc. (NYSE: CXO) is a top energy play in the Permian Basin in West Texas. The company is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. It also may be a possible takeover candidate.

Concho just completed a successful secondary stock offering that raised close to $1 billion, if the over-allotment shares were sold. The company plans to use the net proceeds from this offering to repay the debts under the company’s credit facility, as well as for corporate purposes that include financing its three-year accelerated growth plan, capital expenditure tied to the recently announced midstream joint venture and potential future asset buys. RBC has the company as a top pick, with a $148 price target. The consensus target is $150.34. Concho closed Thursday at $142.33.


Read more: RBC's Top U.S. Stock Picks From Global Ideas List Include Advance Auto Parts (NYSE: AAP), CBS (NYSE: CBS), Discover Financial Services (NYSE: DFS), Johnson Controls (NYSE: JCI), PNC Financial Services (NYSE: PNC) - 24/7 Wall St. http://247wallst.com/investing/2014/07/ ... z36nTDNZEQ
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