Sweet 16 Update - Oct 29

[dan_s]

The week ending October 28 was good for equity investors. The S&P 500 Index gained 3.11%, but it is still down 18.15% year-to-date.
The Energy Sector is one of the few bright spots in the market this year. Our Sweet 16 Growth Portfolio gained 2.34% last week despite some profit taking on Thursday and Friday. The Sweet 16 is up 52.66% YTD on top of a 132.6% gain in 2021.

Four of the Sweet 16 (AR, EQT, MTDR, RRC) reported Q3 results last week and I have updated my forecast/valuations models for all four and we have published updated profiles on AR and RRC. We cover Antero Midstream (AM) at the end of the AR profile. If you just look at AM, it is not very impressive despite its dividend yield of ~8.6%. What makes AM a very good long-term investment for those of you investing for high yield dividends is AM's relationship with AR. AR's steady growth = steady revenue growth for AM. I give AM an A+ safety rating.

AR, EQT and RRC are three of our five "Gassers". Q3 results were good and Q4 and Q1 2023 results should be even better. I did lower my current valuations of all three slightly because they reported lower production and lower realized NGL prices than I was expecting, BUT ALL THREE HAVE A LOT MORE UPSIDE FOR US. The U.S. natural gas market is in MUCH BETTER shape than it has been in for over a decade. If Miss La Nina delivers the cold winter that I'm expecting, there is a good chance we see a "super spike" in the Henry Hub gas price in Q1.

Matador Resources (MTDR) reported better Q3 results than my forecast causing me to raise my current valuation by $11 to $93 per share. The Company is on-track to more than $1.2 billion of free cash flow this year. The current share price is just 3.6 X 2022 operating cash flow per share. IMO 5X annualized operating CFPS is a conservative valuation.

MTDR moved up to $70.52 on Wednesday morning (10/26) but pulled back to close at $65.92 on October 28th. Investors don't always react to good results and maybe some fund managers were expecting the Company to announce a big dividend increase and/or a stock repurchase program.

Matador is an "Aggressive Growth" company that is reporting one of the highest production growth rates in the Sweet 16 > up 13.6% in 2020, up 14.6% in 2021 and (based on their guidance) production should be up more than 20% YOY in 2022. I expect Matador's PV10 Net Asset Value per share of just their proved reserves (P1) at 12-31-2022 to exceed my current valuation of $93 per share. A company with this much running room should not trade at less than 1X PV10 NAV per share, but aggressive growth is not "the thing" this year. MTDR has been promoted to our "Elite Eight" replacing CLR, which is going private.

More Q3 results will be reported this coming week:
> Nov 2: CPE, MGY, PDCE, ROCC and SBOW < SBOW is a "gasser" and I expect it to report a big production increase from Q2 to Q3.
> Nov 3: ESTE, LPI and SM < ESTE is also going to report big production increases in Q3 and Q4. They have already started buying back shares.
> Nov 4: EOG, the largest company in the Sweet 16

Susan and I will be driving up to Dallas on November 1st for a "Family Thing" on the 2nd. I will drive back to Houston on November 3rd and keep my head down late in the week to get all of the Sweet 16 forecast models updated by next weekend. Bad timing on this Dallas trip but when "Grandma" says we have to attend some event for the Dallas grandkids, I have no choice.

CRK, NOG and OVV are all expected to report Q3 results on NOV 8. < CRK, a pure Haynesville Gasser, is the top performing stock in the Sweet 16, up 120.77% YTD and it is still trading at a deep discount to my valuation of $45/share.

Sabrina is on vacation starting today, so my weekly podcast won't be posted to the EPG website until Sunday. After I record the podcast, Sabrina has to do some "magic" to turn it into a file suitable for YouTube.

I want to thank all of you for your support of EPG. We have added 27 new members in October, the best month since the pandemic.

We have a webinar set for November 4 (hosted by ROK Resources, a very promising Canadian Junior) and a Houston luncheon set for November 28 (hosted by Hemisphere Energy (HMENF), which has been a big gainer for us in our Small-Cap Growth Portfolio.

[dan_s]

I have highlighted ESTE in my 10/29 podcast. It should be posted to the EPG website late today or on Sunday morning. Sabrina needs to convert it to YouTube.