On the EPG website you can find and download a Sweet 16 Summary spreadsheet that shows my valuation for each company compared to the current First Call Price Target.
I spent the weekend working on the newsletter you got this morning, so we are bit late on posting the spreadsheet this week. It is usually updated each Saturday.
It has been a very rough year for the Sweet 16 and the entire energy sector. Wall Street's perception of the upstream oil & gas industry is out-of-whack with reality as all of the Sweet 16 (some of the best companies in the sector) are trading way below break-up value even if you believe WTI will move back to $50 and stay there.
A big plus that the market is missing is how fast the NGL market has tightened. All of the Sweet 16 produce some unhedged NGLs and some of them produce a lot of NGLs. Antero Resource (AR) the largest producer of NGLs. Plus, AR has 100% of their 2018 natural gas production hedged at $3.50.
I am definitely moving Matador Resources (MTDR) into the Sweet 16 on January 1 to replace Carrizo Oil & Gas (CRZO) that is moving to our Small-Cap Growth Portfolio. I still like CRZO. It just happens to be the smallest company in the Sweet 16 and MTDR has passed it.
SM Energy (SM) and SRC Energy (SRCI) are also candidates for promotion.
A "Polar Vortex" will be the big story this week on the Weather Channel. It is hitting the Great Lakes Region on Christmas Eve. People in Chicago should be walking on Lake Michigan by New Years.
Tax Loss selling will end on December 27 and is probably slowing this week as most hedge fund manager wrap things up and take off the last two weeks of each year.
Sweet 16 Update: Dec 18
Sweet 16 Update: Dec 18
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update: Dec 18
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
As the year winds down, it’s clear that one area of winners in 2017 on Wall Street have been the growth stocks. That extends even to small cap growth which has dominated the small cap universe.
Value, while it is up on the year, hasn’t performed as well as the other investing styles.
Heading into 2018, it’s unclear whether value will see a rebound or if growth will take the crown again. Why not plan on both scenarios?
Finding Value Stocks Using a Basic Screen
One-way value investors can hedge their bets is by buying value stocks that also have growth. This is a very powerful combination, if you can find it.
Tracey decided to run a screen using just a few metrics to seek out the growth component along with value.
She started with the Zacks Ranks of #1 (Strong Buy), #2 (Buy) or #3 (Hold). By including the Holds that widened the screen as most stocks are found in that category.
Then she combined it with a PEG ratio under 1.0. A PEG under one usually indicates that a company is undervalued but that it also has growth. It’s cheap growth.
And that’s it. Just those two metrics.
Because she started with a wide screen, she got 148 stocks.
Here are some of the stocks that caught her eye in some of the industries everyone will be watching in 2018.
5 Stocks with PEGs Under 1.0
1. Diamondback Energy (FANG) has a PEG of just 0.8. The energy sector was ignored by Wall Street in 2017 even though the earnings outlook is much improved over 2016. Will these stocks see big gains in 2018? < Keep in mind that PEG = Stock Price / Earnings Growth and Tracey is using earnings growth estimates found on First Call, which in my opinion are based on oil prices that are too low. Go to the EPG website and find the forecast model for FANG. On it you will find a RED BOX that shows how fast FANG's operating cash flow is growing. In my opinion, using cash flow growth rather than earnings growth produces a much more accurate PEG ratio for an upstream company. - Dan
2. KB Home KBH is still cheap even though shares have soared in 2017. It has a PEG of 0.7 and is expected to grow earnings another 23% in 2018.
3. Pulte PHM is another large homebuilder that no one is talking about. Who cares about the homebuilders when you can buy Nvidia, right? But Pulte is also cheap. It has a PEG ratio of 0.9 and is expected to grow earnings by 37% in 2018. Is it too late to get in?
4. Royal Caribbean RCL is still producing double digit earnings growth as consumers want “experiences” and travel fits right into that. This cruise company has a PEG of 0.8. Earnings are expected to jump another 15.4% next year. < We use RCL for our Annual EPG Cruise, so glad to see them on this list. - Dan
5. Macy’s M is one of 9 retailers that came up in the screen. It has bounced off its recent lows, when it was trading with a P/E of around 5.0. It now has a P/E of 7.6 and a PEG of 0.9. But will earnings rebound next year as well?
Investors should also take a look at some of the smaller, specialty retailers like The Tile Shop. It has a PEG of 0.8.
Remember, to always research the companies before you buy. This was a basic screen with few metrics. It doesn’t tell you the whole picture.
Additionally, the semiconductors were well-represented in the screen, as they have big growth projections and are cheap.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.
As the year winds down, it’s clear that one area of winners in 2017 on Wall Street have been the growth stocks. That extends even to small cap growth which has dominated the small cap universe.
Value, while it is up on the year, hasn’t performed as well as the other investing styles.
Heading into 2018, it’s unclear whether value will see a rebound or if growth will take the crown again. Why not plan on both scenarios?
Finding Value Stocks Using a Basic Screen
One-way value investors can hedge their bets is by buying value stocks that also have growth. This is a very powerful combination, if you can find it.
Tracey decided to run a screen using just a few metrics to seek out the growth component along with value.
She started with the Zacks Ranks of #1 (Strong Buy), #2 (Buy) or #3 (Hold). By including the Holds that widened the screen as most stocks are found in that category.
Then she combined it with a PEG ratio under 1.0. A PEG under one usually indicates that a company is undervalued but that it also has growth. It’s cheap growth.
And that’s it. Just those two metrics.
Because she started with a wide screen, she got 148 stocks.
Here are some of the stocks that caught her eye in some of the industries everyone will be watching in 2018.
5 Stocks with PEGs Under 1.0
1. Diamondback Energy (FANG) has a PEG of just 0.8. The energy sector was ignored by Wall Street in 2017 even though the earnings outlook is much improved over 2016. Will these stocks see big gains in 2018? < Keep in mind that PEG = Stock Price / Earnings Growth and Tracey is using earnings growth estimates found on First Call, which in my opinion are based on oil prices that are too low. Go to the EPG website and find the forecast model for FANG. On it you will find a RED BOX that shows how fast FANG's operating cash flow is growing. In my opinion, using cash flow growth rather than earnings growth produces a much more accurate PEG ratio for an upstream company. - Dan
2. KB Home KBH is still cheap even though shares have soared in 2017. It has a PEG of 0.7 and is expected to grow earnings another 23% in 2018.
3. Pulte PHM is another large homebuilder that no one is talking about. Who cares about the homebuilders when you can buy Nvidia, right? But Pulte is also cheap. It has a PEG ratio of 0.9 and is expected to grow earnings by 37% in 2018. Is it too late to get in?
4. Royal Caribbean RCL is still producing double digit earnings growth as consumers want “experiences” and travel fits right into that. This cruise company has a PEG of 0.8. Earnings are expected to jump another 15.4% next year. < We use RCL for our Annual EPG Cruise, so glad to see them on this list. - Dan
5. Macy’s M is one of 9 retailers that came up in the screen. It has bounced off its recent lows, when it was trading with a P/E of around 5.0. It now has a P/E of 7.6 and a PEG of 0.9. But will earnings rebound next year as well?
Investors should also take a look at some of the smaller, specialty retailers like The Tile Shop. It has a PEG of 0.8.
Remember, to always research the companies before you buy. This was a basic screen with few metrics. It doesn’t tell you the whole picture.
Additionally, the semiconductors were well-represented in the screen, as they have big growth projections and are cheap.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group