Sweet 16 Update - Jan 8

[dan_s]

The Sweet 16 is off to a great start in 2022, up 10.25% in the first week as lots of money managers is rotating into the energy sector. All 16 companies have strong balance sheets, no near-term debt issues, lots of running room and are all generating free cash flow from operations.

The S&P 500 Index lost 1.87% during the first week of trading.

The "Big Dogs" of the Wall Street Gang (Goldman Sachs, Morgan Stanley, Bank of America, etc) are now all forecasting a year of solid oil prices with targets of $75 to $90 per barrel. Wall Street is a "herd" and the herd follows the Alpha Dogs. Plus, the Commodity Super Cycle and a falling US dollar should push oil prices higher.

My Saturday podcast points out how much stronger the upstream sector is today compared to early 2021.

2021 was the best year ever for the Sweet 16 with a gain of 132.6% not including dividends.

8 of the companies do pay dividends and several more will soon be paying dividends. Production growth is still important, which is why EOG Resources (EOG) is one of my Top Picks. They have high-graded their drilling inventory and they are going to drill & complete wells this year are are expected to payout in less than a year and generate more than 100% return on investment. EOG should be a Core Holding in every portfolio.

Ovintiv (OVV) is another one of the Elite Eight that looks very good to me.

Callon Petroleum (CPE) was the top gainer in 2021, up 259%. I've updated my valuation to $90.00, so IMO it still has 73% upside from where it closed on Friday.

Earthstone Energy (ESTE) is off to the best start; up 20.2% on the first week of 2022. It is the smallest company in the Sweet 16, but it is the fastest growing. Earthstone's production increased 35.1% in 2019, 13.8% in 2020, on-track to over 60% in 2021 and my forecast is for 88% production growth in 2022 if they close the Chisholm Acquisition in Q1.

[dan_s]

Per EIA: "According to our December 2021 Short-Term Energy Outlook (STEO) estimates, U.S. crude oil production in 2021 decreased by 0.1 million barrels per day (b/d) from 2020 and by 1.1 million b/d from 2019. Cold weather in February and hurricanes in August contributed to this decrease, but it also was a result of the decline in investment among U.S. oil producers since mid-2020."

Read why EIA thinks oil price went up in 2021: https://www.eia.gov/todayinenergy/detail.php?id=50738

The Big Paradigm Shift: There will be no spare oil production capacity sometime in Q3 2022.

[Roadster]

Dan

Amazing results. Thank you.

Rick

[dan_s]

14 OPEC cartel countries cannot produce oil up to their quotas. The Paradigm Shift is well underway.