Sweet 16 Update - Feb 12

[dan_s]

The Sweet 16 gained 1.3% during the week ending February 11 and is now up 19.76% YTD.
The S&P 500 Index declined 1.72% during the same week and is now down 7.29% YTD.

The overall market is under pressure from the fear of the Fed's tightening tactics and fear of the situation in Russia/Ukraine. Investors don't like the uncertainty.

Money managers are rotating money into commodities as the "safe haven" from inflation. WTI oil front month NYMEX contract (MAR22) closed at $93.90/bbl on Friday, up 4% on the day. FEAR of Russia invading Ukraine and IEA increasing their oil demand forecast are the primary drivers.

EQT Corp (EQT) is the only Sweet 16 company that has reported Q4 financial results so far. AR, CRK, CLR and MGY are expected to report Q4 results next week.

EQT (up 5.14% YTD) reported solid Q4 results, but I did lower my valuation by $3 to $34 per share. See my update on EQT posted earlier today. EQT is still trading below book value, which is insane for a company that will be generating a lot of free cash flow (estimated by the company at more than $10 billion from 2022 to 2026). Plus, if the accountants are doing their job, an upstream oil & gas company should never trade below book value, especially at today's commodity prices. EQT is the largest producer of natural gas in the U.S.

Earthstone Energy (ESTE), up 23.6% YTD, is also trading below book value. Earthstone is the fastest growing company in the Sweet 16.

I also took a hard look at Northern Oil & Gas (NOG) early in the week and I increased by valuation by $2 to $44.

The updated Sweet 16 spreadsheet will be posted to the EPG website late today. It shows my current valuations for each company compared to First Call's current 12-month price target for each company. Keep in mind that First Call price targets are the average of all price targets submitted to Reuters and some of the reports in the database are over three months old and based on much lower oil & gas prices than we have today.

My current valuations are 50.13% higher than where the Sweet 16 closed on Feb 11. First Call's price targets are 23.49% higher for the group.

PDC Energy (PDCE) was the only member of the Sweet 16 that traded lower on Friday. A big block of stock sold in the morning that triggered a lot of stop loss order trades. I don't see any fundamental reason for the selloff. Sometimes the Market just gives us a gift. My valuation of $93.00 is 59% higher than where PDCE closed on Friday. PDC is rock solid; generating over $1 Billion of free cash flow in 2021 and their operating cash flow should increase another 30% in 2022.

Comstock Resources (CRK) is the only Sweet 16 stock down YTD (-6.06%). My valuation is still $20.00 and First Call's price target has moved slightly higher to $12.81.

My weekly podcast will be up on the website late today.