Except for MIND and NFX, the rest of the Sweet-16 has taken a beating this week. Rather strange when you consider that the portfolio is heavily weighted to oil. The portfolio is still up 11% YTD but it has pulled back from being up over 18% just a week ago.
Most of the companies have reported solid 4th quarter results (still waiting on CRZO, GEOI, GPOR, MIND and Petrobank). The only mild disappointment so far has been FX Energy (FXEN) due primarily to delays in getting two wells on-line. FXEN is looking at a 60% to 70% increase in production over the next six months so I think it will be fine. FXEN is hosting our luncheon on March 31 so be sure to sign up for that one or log in to the webcast.
IMO this energy sector selloff is due to the FEAR of a global economic slowdown because of higher fuel costs. Spikes in oil prices have historically been followed by recessions and declining demand for energy.
A few things to think about:
> Overall energy costs for many consumers are flat to last year. Yes, transportation fuel costs are up but electricity and natural gas utility bills are down. In 2007 when oil ran up to $147/bbl the price of natural gas and coal ran up with it. That is not happening this time.
> With oil over $100/bbl, the Sweet 16 companies (with the exception of FXEN) are now looking at much better cash flows than what they budgeted for this year. 1st quarter results are sure to be sharply higher than Q4.
Some of the large-caps look like "Screaming Buys" to me:
> EOG is up just 9% since 1-1-2010. When I plug $100/bbl for oil into my forecast model the Fair Value goes to $140/share.
> PXP is down 9% YTD which makes no sense to me. PXP is a "Core Holding" quality company with top line revenues heavily weighted to oil. They have doulbe digit production growth locked in for several years.
> NFX is well below my Fair Value estimate of $82/share, which BTW is just 6 X 2011 cash flow per share. Newfield has more than 65% of this years natural gas production hedged at over $6/mcf and very little of their oil hedged.
> MIND's business is directly related to the exploration budgets of the majors and large-cap E&P company, which in turn are heavily weighted to oil. My Fair Value estimate for MIND is $16.50.
> Petrominerales (PMGLF) will be reporting a sharp increase in production for the 1st quarter. It is a pure play on South American oil that is now selling at a premium to WTI.
> Expanding budgets mean accelerated drilling programs. PTEN will be putting more rigs to work at higher dayrates.
> High oil prices + low NG prices is good news for PetroBank's (PBEGF) heavy oil business.
Sweet 16 oversold?
Sweet 16 oversold?
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 oversold?
The Sweet 16 took a beating again today. If you believe (as I do) that oil is going to stay in the $100/bbl range, then it is grossly oversold. All are on-track to have very good 1st quarter results.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 oversold?
When I plug $100/bbl oil into my EOG model, the Fair Value goes to about $140/share. Nice to see someone else out there agrees. Sandridge Energy (SD) is on our Watch List. I hope to get a company profile on it soon. Some of you may recall that it took over then Sweet 16 Member Arena Resources early last year. I do like the acreage in the Permian Basin they got from ARD.
http://seekingalpha.com/article/257710- ... urce=yahoo
http://seekingalpha.com/article/257710- ... urce=yahoo
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 oversold?
I'm working on my "Sweet 16 Detailed Update" which will be posted to the website on Monday, March 14. Each time I prepare this report (which all Premium Members should read carefully), I check to see updates to the First Call target prices for each company and compare them to my Fair Value estimates. First Call has raised its target price for each Sweet 16 member that has reported 4th quarter results with the exception of FXEN.
I just notice that the Thomson/First Call Target Price has gone up over $5/share for NOG to $36.88, very close to my Fair Value estimate of $39/share.
Another one you should check out is Mitcham Industries (MIND). I have been saying for months now that MIND's Fair Value is $16.50. First Call has raised their target price of $15.50, well above the current share price. Per my forecast, MIND is going to report very strong 4th quarter results in a few weeks. MIND has a fiscal year that ends on January 31.
MIND is debt free and trading at 4X cash flow per share, well below the peer group average. Their business is tied to the exploration budgets of the majors and large-cap E&P companies.
I just notice that the Thomson/First Call Target Price has gone up over $5/share for NOG to $36.88, very close to my Fair Value estimate of $39/share.
Another one you should check out is Mitcham Industries (MIND). I have been saying for months now that MIND's Fair Value is $16.50. First Call has raised their target price of $15.50, well above the current share price. Per my forecast, MIND is going to report very strong 4th quarter results in a few weeks. MIND has a fiscal year that ends on January 31.
MIND is debt free and trading at 4X cash flow per share, well below the peer group average. Their business is tied to the exploration budgets of the majors and large-cap E&P companies.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 oversold?
From March 12: "Don't you dare blow this" by Elliott H. Gue ( a really smart guy)
Market pullbacks of 5 to 10 percent are common occurrences; stocks that have posted dramatic gains are often the most vulnerable to these broader pullbacks because investors have larger profits to protect. This is not a comfortable reality for investors--pullbacks are scary events, especially with the trauma of the 2008 market meltdown looming large in many investors’ memories.
My Take: Despite oil moving over $100/bbl the Sweet -16 pulled back sharply. The S-16 companies have rock solid fundamentals but investors often sell their "winners" during a market pull-back to lock in the gains. When the FEAR subsides, these stocks are often the first to rebound.
If you’re worried about a potential shakeout, consider staggering your purchase over time. For example, if you plan to invest $15,000 in a stock, consider buying that stake in three lots of $5,000 over a period of several months. That way you’ll have some exposure to further upside if the stock price continues to climb. However, if the shares pull back, this strategy also leaves you with some dry powder to boost your position.
Buy Stocks Now
That brings me to another issue that’s even more instructive in the current market environment. Many investors wait patiently for a pullback to occur, only to freeze when a normal 5 or 10 percent downdraft takes hold. The sensationalist stories that pass for reporting in the financial media are partly to blame for this fear.
Last summer, the S&P 500 and most stock market indexes pulled back sharply amid concerns about the EU sovereign debt “crisis,” a potential double-dip recession and the Macondo oil spill in the US Gulf of Mexico. The latter event meant that energy stocks, a major component of the Personal Finance Growth and Income Portfolios and the coverage focus of The Energy Strategist, were hit harder than the average stock in the S&P 500.
In both publications, I wrote that the Macondo spill would not mean the end of deepwater drilling and controversially explained why the disaster wasn’t the worst environmental catastrophe in history. I also wrote that a double-dip recession was a remote possibility, noting that the data indicated that US economic growth had only cooled--far from the outright contraction trumpeted in the financial media. Investors overreacted to these events partly because they had substantial profits to protect after the run-up from March 2009 to April 2010.
That was 10 months ago. The subsequent 10 months have been a great time to own stocks. The S&P 500 is up 18.9 percent since the end of May 2010, while the S&P 500 Energy Index is up 38.2 percent. That market pullback was an epic buying opportunity that far too many investors missed out on. [Our Sweet 16 Growth Portfolio was up over 70% during this period.]
The same trends are repeating right now. The S&P 500 topped out in mid-February at 1,344.07 and recently touched a low of 1,291.99, a pullback of slightly less than 4 percent, from high to low. That barely qualifies as a correction, though some sectors and individual stocks have absorbed a harder hit.
For example, one of the best-performing groups in the market over the past year is the Philadelphia Oil Services Index (OSX). As this index up 28.4 percent over the past year alone, investors have a lot of profits to protect; not surprisingly, the OSX has pulled back more sharply than the market as a whole--roughly 10 percent between the recent intraday high and low.
Gauging the magnitude and duration of market pullbacks is a tricky business. But if you put a gun to my head, I’d guess the market has a bit more downside to come. Short-term market moves are more often driven by technical factors--support and resistance levels on the charts--rather than by fundamentals.
In technical analysis, support levels are areas where buyers emerge and support stocks. Resistance levels are levels where sellers come in and push the market lower. Typically, support and resistance levels are marked in areas where the market has seen significant trading action in the past.
The S&P 500 Index closed at 1,304 on March 11.
The first support level for the market was 1,300, both a psychologically important round number and in the neighborhood of the S&P 500’s 50-day moving average. Most graphs have both the 50 and 200-day moving average lines overlaid, and these levels routinely act as at least short-term areas of support or resistance. The market has breached 1,300; once the market begins to rally again, this inflection point will serve as a resistance point.
I’ve drawn three additional levels on this graph that investors should monitor. The first is the January 2011 low of about 1,270. A move to 1,270 would mark a 5.5 percent correction from the S&P 500’s 1,344 top--an absolutely normal and healthy retracement after the big run-up in US equities.
The next line down marks the April 2010 high as well as the high hit right around the time of last year’s midterm election. This level of 1,220 to 1,230 would mark a roughly 8 to 9 percent move for the S&P 500.
The final support level on this chart is around 1,180, a 12 percent correction from the recent 1,344 highs for the index. That’s also the S&P 500’s 200-day moving average and the index’s November 2010 low.
Given the US economy’s strong fundamentals, the averages should bottom out at either the 1,270 or 1,230--a roughly 5 to 10 percent total pullback from recent high to low.
When that happens, be sure to pounce on this opportunity to grab some of our top recommended stocks at a temporary discount
Market pullbacks of 5 to 10 percent are common occurrences; stocks that have posted dramatic gains are often the most vulnerable to these broader pullbacks because investors have larger profits to protect. This is not a comfortable reality for investors--pullbacks are scary events, especially with the trauma of the 2008 market meltdown looming large in many investors’ memories.
My Take: Despite oil moving over $100/bbl the Sweet -16 pulled back sharply. The S-16 companies have rock solid fundamentals but investors often sell their "winners" during a market pull-back to lock in the gains. When the FEAR subsides, these stocks are often the first to rebound.
If you’re worried about a potential shakeout, consider staggering your purchase over time. For example, if you plan to invest $15,000 in a stock, consider buying that stake in three lots of $5,000 over a period of several months. That way you’ll have some exposure to further upside if the stock price continues to climb. However, if the shares pull back, this strategy also leaves you with some dry powder to boost your position.
Buy Stocks Now
That brings me to another issue that’s even more instructive in the current market environment. Many investors wait patiently for a pullback to occur, only to freeze when a normal 5 or 10 percent downdraft takes hold. The sensationalist stories that pass for reporting in the financial media are partly to blame for this fear.
Last summer, the S&P 500 and most stock market indexes pulled back sharply amid concerns about the EU sovereign debt “crisis,” a potential double-dip recession and the Macondo oil spill in the US Gulf of Mexico. The latter event meant that energy stocks, a major component of the Personal Finance Growth and Income Portfolios and the coverage focus of The Energy Strategist, were hit harder than the average stock in the S&P 500.
In both publications, I wrote that the Macondo spill would not mean the end of deepwater drilling and controversially explained why the disaster wasn’t the worst environmental catastrophe in history. I also wrote that a double-dip recession was a remote possibility, noting that the data indicated that US economic growth had only cooled--far from the outright contraction trumpeted in the financial media. Investors overreacted to these events partly because they had substantial profits to protect after the run-up from March 2009 to April 2010.
That was 10 months ago. The subsequent 10 months have been a great time to own stocks. The S&P 500 is up 18.9 percent since the end of May 2010, while the S&P 500 Energy Index is up 38.2 percent. That market pullback was an epic buying opportunity that far too many investors missed out on. [Our Sweet 16 Growth Portfolio was up over 70% during this period.]
The same trends are repeating right now. The S&P 500 topped out in mid-February at 1,344.07 and recently touched a low of 1,291.99, a pullback of slightly less than 4 percent, from high to low. That barely qualifies as a correction, though some sectors and individual stocks have absorbed a harder hit.
For example, one of the best-performing groups in the market over the past year is the Philadelphia Oil Services Index (OSX). As this index up 28.4 percent over the past year alone, investors have a lot of profits to protect; not surprisingly, the OSX has pulled back more sharply than the market as a whole--roughly 10 percent between the recent intraday high and low.
Gauging the magnitude and duration of market pullbacks is a tricky business. But if you put a gun to my head, I’d guess the market has a bit more downside to come. Short-term market moves are more often driven by technical factors--support and resistance levels on the charts--rather than by fundamentals.
In technical analysis, support levels are areas where buyers emerge and support stocks. Resistance levels are levels where sellers come in and push the market lower. Typically, support and resistance levels are marked in areas where the market has seen significant trading action in the past.
The S&P 500 Index closed at 1,304 on March 11.
The first support level for the market was 1,300, both a psychologically important round number and in the neighborhood of the S&P 500’s 50-day moving average. Most graphs have both the 50 and 200-day moving average lines overlaid, and these levels routinely act as at least short-term areas of support or resistance. The market has breached 1,300; once the market begins to rally again, this inflection point will serve as a resistance point.
I’ve drawn three additional levels on this graph that investors should monitor. The first is the January 2011 low of about 1,270. A move to 1,270 would mark a 5.5 percent correction from the S&P 500’s 1,344 top--an absolutely normal and healthy retracement after the big run-up in US equities.
The next line down marks the April 2010 high as well as the high hit right around the time of last year’s midterm election. This level of 1,220 to 1,230 would mark a roughly 8 to 9 percent move for the S&P 500.
The final support level on this chart is around 1,180, a 12 percent correction from the recent 1,344 highs for the index. That’s also the S&P 500’s 200-day moving average and the index’s November 2010 low.
Given the US economy’s strong fundamentals, the averages should bottom out at either the 1,270 or 1,230--a roughly 5 to 10 percent total pullback from recent high to low.
When that happens, be sure to pounce on this opportunity to grab some of our top recommended stocks at a temporary discount
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group