Sweet 16 Update - June 27

[dan_s]

For the week ending June 25th the Sweet 16 gained 30.06% and it is now up 136.34% YTD. It was the best week for the Sweet 16 EVER (since 2001).
The S&P 500 Index is up 13.86% YTD.

Laredo Petroleum (LPI), up 343% YTD has moved over my valuation of $86.00, so I suggest that if you have a large stake in it that you may want to harvest some of that gain or protect it by selling covered calls. It may have more upside for us, but I need their Q2 results and fresh guidance to confirm my forecast/valuation model before I can increase my valuation any further.

Callon Petroleum (CPE) leads the pack, up 351% and it is getting close to my valuation of $63.00. Only ~10% of their 2022 oil is hedged, so CPE does have a lot more upside for us if WTI oil prices move higher.

If you are bullish on oil prices, Continental Resources (CLR) should be a "Core Holding" for you. None of CLR's oil is hedged after May 2021, so it is set up for a RECORD Q3 2021 with operating cash flow that could top $1Billion for the quarter.

Comstock Resources (CRK), up 48.7% YTD trades at the deepest discount to my valuation of $16.00. I am bullish on all four of our "gassers", CRK, AR, EQT and RRC.

Because I am very bullish on natural gas and NGL prices, I really like Cimarex Energy (XEC), which is heading toward a merger with Cabot Oil & Gas (COG). COG is a pure "gasser". My valuation of XEC is now $109.00. It closed at $73.05 on June 25.

As a group, the Sweet 16 is still trading at just 4X 2021 operating cash flow per share. My opinion is that companies of this quality should be trading at 6X to 8X operating cash flow. Strong balance sheets, lots of free cash flow, lots of low-risk / high-return drilling inventory ("running room") and paying dividends puts them higher in the range. The four trading at the lowest multiple of 2021 operating cash flow per share are:
CRK at 1.68 X < As natural gas prices increase, CRK should draw a lot more interest heading in to the next winter heating season.
AR at 2.91 X
OVV at 2.92 X
LPI at 3.02 X < There is upside to my valuation if both of their "transformative deals" close and they provide updated guidance that confirms my 2022 forecast.
TALO at 3.14 X < Note that there is nothing in my 2021 or 2022 CFPS forecasts for Zama or Puma West, which are world class oil discoveries.

EOG and PXD are the only two trading over 6X operating CFPS. They have market-caps of $51.2 Billion and $40.3 Billion, Super Strong balance sheets and LOTS OF HIGH QUALITY RUNNING ROOM. They both generate lots of free cash flow and I expect them to raise their dividends a lot in 2022.

The Sweet 16 Summary Spreadsheet will be posted to the EPG website early Monday morning with my current valuation for each stock. My valuations will be going up after they release Q2 results if oil and gas prices stay over $70/bbl and $3.00/MMBtu.