Sweet 16 for 2014 now in the record book

[dan_s]

The Sweet 16 Growth Portfolio spreadsheet for 2014 has been updated through the December 31st closing prices:
> Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts for each company
> Tab 2 shows my current Fair Value Estimate compared to First Call's Price Target for each company as of 12-31-2014

It is now official that 2014 is the 2nd worse year in the history of our Sweet 16 Growth Portfolio. The Sweet 16 has been an annual model portfolio since 2001. In 14 years we have only had two negative years. I sure you can guess that 2008 was the worse year ever as the Sweet 16 and the entire market got hammered. The Sweet 16 lost over 60% in 2008.

For 2014 the Sweet 16 lost 24.7% of its value. Only XEC, EOG, MTDR and NFX finished with small gains.

The Sweet 16 finished 74.4% below my Fair Value Estimates and 48.9% below First Call's current price targets.

On January 1st I will post the Sweet 16 for 2015. I am moving BCEI, SN and UNT to our Small-Cap Growth Portfolio. At their current prices, all three of these small-caps are oversold. The moves were made to make room for three companies that I believe are prime takeover targets.

In a feeble attempt to encourage all of us, let me remind you that during the 4th quarter of 2008 the situation looked much worse. However, 2009 and 2010 were fantastic years for the Sweet 16. In 2010 the Sweet 16 finished up over 54%.

Commodity markets do run in cycles. Through June, 2014 we had close to five years of Brent over $100/bbl with just a couple brief dips. No one saw this coming in June because we are still at an historically low level of global excess capacity. For five years OPEC did its job of maintaining a stable oil price.

I am going to discuss in Friday's newsletter why there is no way we are in for a repeat of the extended low oil price cycle of 1985 to 1990 when WTI dipped to $10 and stayed under $20. In 1985 global demand for refined products was under 75 million bbls per day (compared to 93.5 million bbls per day now) and the world had an estimated spare crude oil production capacity of 13 million bbls per day with over 7 MMBPD in Saudi Arabia alone. OPEC was a real cartel in 1985 and most of the member nations had strong economies and lots of exports. Today over half of the OPEC nations are effectively bankrupt and Saudi has only 2 MMBPD of excess capacity. Saudi could shore up the oil price tomorrow by announcing they will cut production by just 10% and their revenues would skyrocket. What's going on today is purely for political reasons. Saudi is using oil as a weapon to punish Russia and Iran for bad behavior and it is working as planned.

Happy New Year! 2015 should be very interesting my friends.