The Sweet 16 continues to drift higher. It gained 2.18% for the week ending April 15 and is now up 15.86% year-to-date. This compares to the S&P 500 Index that is up just 1.80% YTD.
Money continues to rotate into the energy sector. The energy sector was the worst preforming sector in 2015. Lots of fund managers rebalance at the beginning of a new year, so money rotating into high quality companies like our Sweet 16 was to be expected. All of these companies have solid cash flow from operations.
Cimarex Energy (XEC) and Range Resources (RRC) moved above my valuations [it does happen]. When this happens, I take a hard look at my forecast model for the company to see if I can justify taking my valuation higher. Based on what I know today, I cannot raise my valuation for XEC even though it has a super strong balance sheet and outstanding management & technical teams. I will re-evaluate XEC (and all of our model portfolio companies) after I see their Q1 results and operational updates. For now, I rate XEC a HOLD.
I can raise my valuation of RRC because I am gaining confidence in my outlook for natural gas and NGL prices. I raised my valuation $4.00 to $41.00. RRC is up 51.2% YTD, tops in the Sweet 16.
Noble Energy (NBL) was officially added to the Sweet 16 on 4/9/2016. It replaced Laredo Petroleum (LPI). If oil prices move over $60/bbl, I will add LPI to our Small-Cap Growth Portfolio. I like LPI, but its debt will become a problem if oil prices remain low.
Newfield Exploration (NFX), up 7.9% YTD is my Top Pick in the STACK play.
Devon Energy (DVN) has the largest leasehold position in STACK and I think the company (down 1.9% YTD) has the potential to make a strong run in the 2nd half of the year if they report progress on their transition plan. Devon has three large asset packages on the market, plus they are selling the Access Pipeline. Devon hopes to raise $2 Billion from these sales. If so, the share price could double.
SM Energy (SM), up 29.6% YTD, is still trading at a big discount to my valuation. Last week several analysts increased their earnings and cash flow forecasts for SM. The company also announced that their bank credit facility had been approved at $1.25 billion. SM currently has approximately $1.0 billion in liquidity. Based on my forecast, they will outspend cash flow from operations by approximately $180 million this year. SM's production mix is approximately 46% natural gas, 30% crude oil and 24% NGLs.
Diamondback Energy (FANG) and Pioneer Natural Resources (PXD) are getting close to my valuations.
First quarter results are going to be ugly because of low commodity prices, but the market is beginning to look forward. It is becoming obvious that the oil market is tightening and should be balanced by the end of Q3. If crude oil inventories begin to fall week after week, oil prices will march higher. It really doesn't matter what happens in Doho on Sunday because market forces are doing their magic to balance supply & demand. They call them "cycles" for a reason.
An increase in takeover activity usually marks the end of each cycle. Several of the Sweet 16 are attractive targets and several of them may be buyers. Big mergers will draw more attention from Wall Street. This is definitely setting up the 2nd half of this year to be very interesting and profitable for us.
My Sweet 16 Summary spreadsheet will be posted to the EPG website on Sunday. Tab 1 of the spreadsheet shows my EPS and CFPS forecast for each company by quarter in 2016 and for the year 2017. Tab 2 shows my valuation for each company's common stock compared First Call's current price forecast. BTW First Call's share price forecasts have been drifting higher all year.
Sweet 16 Update - April 16
Sweet 16 Update - April 16
Last edited by dan_s on Sat Apr 16, 2016 3:06 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - April 16
Comments from Dan Dicker on April 14:
http://realmoney.thestreet.com/articles ... _ven=YAHOO
This weekend, Doha in Qatar will host several OPEC and non-OPEC members to discuss whether they can agree on a production cut that will stick. What's going to happen there and what will it do to oil prices and our oil stocks?
The recent history of meetings among oil-producing nations, including full OPEC meetings, has been nothing but bleak for the past two years. The inability to find agreement on a production cut in November 2014 caused oil prices to skid below $80; similar ineptitude at a meeting in December 2015 caused oil to skid further below $30. There is good reason to expect little from the meeting this weekend.
Except the prospects for an agreement this time, most significantly between the Saudis and the Russians, is quite good. Indeed, the proposed "freeze" limits on production among the participants at Doha is already 400,000 barrels a day above what is being produced right now -- it is an easy target to meet, particularly because both the Saudis and Russians have few prospects to increase production in the near future.
So, Doha will most likely be a success -- but will this translate into instant profits from our oil stocks? I'm not nearly as sure. Much of the optimism from Doha is, I believe, already in the market, with oil rallying again above $42 a barrel. And as numerous as the signs are that oil markets are rebalancing, there are still months of gluts waiting to be drained. Speculative oil positions have gone bearish, assuming both the toothless nature of the Doha meetings and bearish expectations in upcoming crude and distillate stockpiles.
So, as always, the question remains: What to do now? I stand completely by my timeline that I laid out in my book, and believe that oil prices become seriously constructive in the third quarter of 2016 and believe truly that oil will see triple digits by the end of 2017.
But more importantly for today, I believe the chance that oil and oil stocks will again swoon down to levels we saw in February is, frankly, nil. The move that speculative players are banking on after the Doha meeting, if it comes, will be short and the last trip down.
Therefore, you'll likely need to pay up a little for stocks, if you're not already in. Some of my favorites are, in my view, overpriced at this point in the cycle -- EOG Resources (EOG), for example, could have been added to positions closer to $70 little more than a week ago. Today it's at $78. Cimarex (XEC) similarly priced at $95 on April 4 now trading $107, and Hess (HES) has moved from $50 to $57.
We could get more speculative, as we did earlier in March -- and look for a negative response from the meeting while targeting higher-beta names: We could look to buy Anadarko (APC), for example, closer to $45, Devon (DVN) at $27, or Apache (APA) -- which has truly rallied spectacularly from its lows -- we could seek under $50.
None of these would qualify as core holdings for me, but they certainly have proven their worth in any kind of midterm oil rally, which after the Doha meetings, I believe we're ultimately going to get.
The important point is to get cracking and start rotating into energy shares -- if you haven't begun already. This weekend's meeting and its outcome could generate one of the last chances you may have to find value.
http://realmoney.thestreet.com/articles ... _ven=YAHOO
This weekend, Doha in Qatar will host several OPEC and non-OPEC members to discuss whether they can agree on a production cut that will stick. What's going to happen there and what will it do to oil prices and our oil stocks?
The recent history of meetings among oil-producing nations, including full OPEC meetings, has been nothing but bleak for the past two years. The inability to find agreement on a production cut in November 2014 caused oil prices to skid below $80; similar ineptitude at a meeting in December 2015 caused oil to skid further below $30. There is good reason to expect little from the meeting this weekend.
Except the prospects for an agreement this time, most significantly between the Saudis and the Russians, is quite good. Indeed, the proposed "freeze" limits on production among the participants at Doha is already 400,000 barrels a day above what is being produced right now -- it is an easy target to meet, particularly because both the Saudis and Russians have few prospects to increase production in the near future.
So, Doha will most likely be a success -- but will this translate into instant profits from our oil stocks? I'm not nearly as sure. Much of the optimism from Doha is, I believe, already in the market, with oil rallying again above $42 a barrel. And as numerous as the signs are that oil markets are rebalancing, there are still months of gluts waiting to be drained. Speculative oil positions have gone bearish, assuming both the toothless nature of the Doha meetings and bearish expectations in upcoming crude and distillate stockpiles.
So, as always, the question remains: What to do now? I stand completely by my timeline that I laid out in my book, and believe that oil prices become seriously constructive in the third quarter of 2016 and believe truly that oil will see triple digits by the end of 2017.
But more importantly for today, I believe the chance that oil and oil stocks will again swoon down to levels we saw in February is, frankly, nil. The move that speculative players are banking on after the Doha meeting, if it comes, will be short and the last trip down.
Therefore, you'll likely need to pay up a little for stocks, if you're not already in. Some of my favorites are, in my view, overpriced at this point in the cycle -- EOG Resources (EOG), for example, could have been added to positions closer to $70 little more than a week ago. Today it's at $78. Cimarex (XEC) similarly priced at $95 on April 4 now trading $107, and Hess (HES) has moved from $50 to $57.
We could get more speculative, as we did earlier in March -- and look for a negative response from the meeting while targeting higher-beta names: We could look to buy Anadarko (APC), for example, closer to $45, Devon (DVN) at $27, or Apache (APA) -- which has truly rallied spectacularly from its lows -- we could seek under $50.
None of these would qualify as core holdings for me, but they certainly have proven their worth in any kind of midterm oil rally, which after the Doha meetings, I believe we're ultimately going to get.
The important point is to get cracking and start rotating into energy shares -- if you haven't begun already. This weekend's meeting and its outcome could generate one of the last chances you may have to find value.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group