Sweet 16 Update - September 6

[dan_s]

Sweet 16 Growth Portfolio spreadsheet has been updated and posted under the Sweet 16 Tab:
> Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts for each company
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 9-5-2014

First Call raised their price targets on 10 of the Sweet 16 this week. That is a good sign. Two are above and several are now close to my FVE.

As a group, the Sweet 16 was down 5.16% for the week. It is up 25.07% year-to-date, compared to the S&P 500 Index that is up 8.62% YTD. Crude oil prices flopping around has many investors moving to the sidelines for awhile. They will be back.

The only stock that was up for the week was SM Energy (SM). It is my Top Pick for the Eagle Ford.

All of the individual company profiles have now been updated and are available under the Sweet 16 Tab. After you log onto the website, just click on the Sweet 16 Tab, then click on the company logos.

I got a detailed report from Stifel today on Whiting Petroleum (WLL) and I updated my forecast model accordingly. My Fair Value Estimate for WLL is now $126/share. My guess is that it will move toward that amount after their merger with KOG. It may take a full quarter of actuals "post-merger" for the Wall Street gang to figure out that WLL is a "Screaming Buy". In 2015 Whiting will be generating over $21/share of cash flow from operations. A multiple of 6X CFPS is VERY CONSERVATIVE for a large-cap of this quality. For comparison, CLR is trading at close to 9X CFPS. Accumulating WLL on the dips between now and year-end should generate a nice gain early in 2015. When you compare WLL to CLR you can see how under-valued it is.

One of our members called me this morning and asked me which companies were my Top Picks in each major shale play. So here they are for all of you.

Bakken: WLL, OAS, CLR
Eagle Ford: SM, EOG, SN, DVN, CRZO, MTDR (read profile on ROSE that we will send out on Monday)
Permian: CXO and XEC (see profile on CPE)
Niobrara: BCEI, CRZO
Mid-Continent: NFX, XEC, DVN, UNT
Marcellus: RRC < this is a Core Holding for any of you with a long-term time prospectus. RRC is a great company.
Utica: GPOR
SCOOP/STACK in Oklahoma: NFX and CLR (this is turning into a very big deal)

I think Devon Energy (DVN) looks very attractive at today's share price. They have completed some non-core asset sales (big ones) and they are now poised for exceptional oil production growth. Devon is a "World Class" outfit and should be a "Core Holding".

SM Energy (SM) is trading at the deepest discount to my Fair Value Estimate. It is primarily an Eagle Ford company, but they also have a nice position in the Bakken and their Powder River project could layer on another major growth area.

SN and Comstock Resources (CRK) have nice acreage blocks in the TMS, which is starting to look very good. We will publish a profile on GDP this month.

Susan & I are heading to Lake Tahoe in the morning for a short vacation. I will be checking back in on Monday.

[Laurin_DE]

okay...
buying more SM is a given...
but what then?
...diversifying into SN, GPOR, CPE or HK?
...or rather increasing the existing stake in OAS, WLL and LTS.TO?
...or even getting into something like SFY or even ESTE?

Decisions, decisions...
...any opinions, any advice?

[dan_s]

They are all on sale this morning, thanks to the dip in oil prices. Support at $93 has been broken. Next strong support level is $90 for WTI. There is VERY STRONG support for Brent at $100, so that should.

Building positions in the Core Holding quality large-caps on dips like this is a good idea. They all have good hedging programs, so commodity price exposure is not as big of a deal for them as some of the smaller companies. Note that I put a summary of each company's hedge positions at the bottom of each forecast model (the Excel version).

[jb2257]

Any thoughts on CXO? It's taking a larger hit than some of the others.

[setliff]

with cl at 92.97 as I write this that support at 92-93 maybe intact. good bounce back today.

[dan_s]

Seeing WTI in the after hours trading is encouraging. I think now is a good time to build positions in the larger companies.

CXO is very heavily weighted to oil and it is outspending cash flows to build proven reserves, which may explain a bit of the dip. It is also less of a household name than some of the other.