Sweet 16 Update - Oct 23

[dan_s]

Twelve of the Sweet 16 finished the week ending October 22 higher and the portfolio gained 5.48% during the week and is now up 160.54% YTD.
The S&P 500 Index gained 1.96% during the week on overall good Q3 earnings reports. The Index is up 21.00% YTD.

Three of the companies will report Q3 results next week.
• Range Resources (RRC) on October 26
• Antero Resources (AR) on October 27
• EQT Corp (EQT) on October 27

The other 13 companies will report Q3 results the first week of November.

Adjusted Net Income and Operating Cash Flow for the 3rd quarter will be good for all of the companies in the Sweet 16. Just remember that “Reported Net Income” has become a worthless number during periods of big moves in commodity prices (up or down). The rule to live by is “Cash pays the bills, not reported earnings.” All of the Sweet 16 are now generating a lot of free cash flow from operations and none of them have debt problems.

My valuations for most (if not all ) of the companies will be moving higher since I will be giving equal weight to 2021 and 2022 operating cash flow. The Wall Street Gang is also gaining more confidence in their valuations as the “Leaders of the Herd” have all raised their commodity price decks. The likelihood of an “Energy Crisis” in 2022 has increased as OECD petroleum inventories continue to decline; now under 28 Days of Consumption. If they drop to 25 Days of Consumption we will see WTI over $100/bbl and some regions of the world may need to ration fuel supplies.

Last week the Wall Street Gang increased their price targets on 14 of the Sweet 16. ESTE and TALO stayed the same just because they are small-caps with less analysts coverage. You can compare my valuations to the First Call Price Targets on the Sweet 16 main spreadsheet that can be downloaded directly from the EPG home page.

Europe is going to find out the hard way this winter that the Paris Climate Accord agenda is not a reality. Europe and Asia are going to burn more oil and coal to generate electricity this winter and it is not a one-year problem. Wind and Solar can NEVER be a significant part of any nation's power supply without causing regular power outages. Modern countries cannot function or provide high standards of living for their citizens with unreliable electricity.

There is not enough “Fairy Dust”, money or raw materials in the world to make AOC’s Green New Deal a reality. EIA’s fresh 30-year forecast shows oil and natural gas demand increasing from 2020 to 2050 and not by a small amount; by 25% for oil and 30% for natural gas. Even coal demand will begin to rise again after 2030. Read the summary here: https://www.eia.gov/todayinenergy/detail.php?id=49856

This is the "Big Paradigm Shift" that will push the Sweet 16 stocks a lot higher during this Up Cycle that is still in the early innings. Adding to this paradigm shift will be OPEC+ unable to keep increasing their production at the rate of 400,000 bpd per month. OPEC+ oil production was below their own quotas in August and September. This is the fun part of the cycle. Hang tough.

[dan_s]

I just took a hard look at my forecast/valuation model for CLR. If I update the model based on the assumption that WTI will average $80/bbl and HH gas will average $4.00/MMBtu in 2022. My valuation of CLR increases by $12.50 to $74.00.

I won't "officially" raise my valuation until I see their Q3 results next week.