Sweet 16 Update - July 17

[dan_s]

The Sweet 16 declined by 34.85% during the week ending July 16 and it is now up 90.01% YTD. The S&P 500 Index declined by 1.13% and is now up 15.20%.

The Sweet 16 is back to where it was at the end of May despite much higher oil, gas and NGL prices since then. The week's dip in oil price triggered a lot of profit taking and buyers sat on the sidelines on worries of what OPEC+ is going to do about UAE and the uptick in Covid cases.

WTI crude settled at $71.81 per barrel on Friday, the lowest in four weeks, and posting a decline of about 4% for the week, the worst weekly performance since March. Saudi Arabia and the UAE seemed to reached a compromise this week, paving the way for OPEC+ to finalize an agreement on output extension that would allow the UAE to increase its baseline production to 3.65 million bpd. Meantime, a large decline in crude stockpiles in the US has done little to support prices as a rise in gasoline inventories raised fresh demand concerns. It is normal for oil prices to pull back a bit after the July 4th holiday as it is seen as the peak of the Summer Demand spike.

Natural gas prices actually finished the week a few cents higher, but the Sweet 16 "gassers" got caught up in the selloff anyway.

Looking at the Texas Dashboard for Covid-19 I see that the number of new cases has increased, but the number of deaths continues to decline. Both the number of cases and deaths are way down since January 2021. Texas has a high vaccine rate and I think over 80% of senior (over 65) have been vaccinated. One of our friends (and an EPG member) did test positive for Covid-19 despite being fully vaccinated, but he has recovered. He got it about two weeks ago in Missouri.

OPEC and Russia appear to have reached an agreement with UAE, giving the Emirates a higher production quota. I've not seen any details of the deal, but the news services have reported that UAE's increased output will not happen until January, 2022. As I have posted here many times, by summer 2022 this world will need every barrel of oil that OPEC+ can bring to market barring a significant increases in travel restrictions.

All of my Sweet 16 stock valuations remain the same because my Q3 forecasts are based on average prices of $70/bbl for WTI and $3.30/mcf for HH natural gas.

The updated Sweet 16 spreadsheet will be posted to the EPG website. They are all going to report solid Q2 results very soon.

[willvanam]

I've been waiting to buy back in and picked up EOG PXD into the close. While the market is forward looking I fail to see how these stocks can be so oversold with the CL curve and NG strip sitting where they are and no spike in oil vol (OVX)

[dan_s]

Selloffs often occur during the "quite period" before quarterly earnings are released. All of the "Elite Eight" have pulled back to very attractive entry points.

In addition to EOG and PXD, take a look at EQT, which is trading at a 90% discount to my valuation and my valuation is based on much lower gas prices than we have today. EQT is the largest natural gas producers in the U.S. and will get a lot bigger when they close the Alta Resources acquisition this quarter. Their operating cash flow should go from $495.4 million in Q1 2021 to over $850 million in Q4 2021 and could top $1 Billion in Q1 2022.

Devon Energy (DVN) is another large-cap that is trading at less than 4X operating cash flow per share. They should soon report Q2 2021 operating cash flow over a $Billion. Wall Street Gang members that criticized their merger with WPX Energy (that closed 1/7/2021) will soon find out how smart that deal was.

The "Elite Eight" are highlighted on the Sweet 16 Summary Spreadsheet that has been posted to the EPG Home Page.

[SergioSays]

Dan, I'm a little suprised CNQ doesn't make the cut in your Sweet 16. Any thoughts on your end...

[dan_s]

There is only one of me, so I can't cover every company. CNQ is solid.

[SergioSays]

There is only one of me, so I can't cover every company. CNQ is solid.

Fair enough and good point. Thanks for the reply.