Sweet 16 Update - Feb 11

[dan_s]

I added another tab to the main Sweet 16 workbook that is updated on the EPG website each weekend. I found a couple of errors this morning, so the most recent one won't be on the website until later today (Sabrina has to review and post it).

The current Sweet 16 companies are down 7.41% YTD after gaining 218% during the 3 years ending 12/31/2023. They are trading at a 58.5% discount to my current valuations, which are based on what I believe to be reasonable assumptions. As a group, the Sweet 16 is trading at just 3.26 X my 2024 operating cash flow per share estimates. A group of this quality should be trading for more than 6 X CFPS because they have strong balance sheets and lots of high-quality Running Room. Take a hard look at column S on the Tab 2 and Tab 3 spreadsheets.

All 16 companies in the Sweet 16 will be reporting solid Q4 results. WTI averaged ~$78/bbl and HH ngas averaged ~3.05/MMBtu in Q4.

The S&P 500 Index is trading 5.08% higher YTD, but if you take out the Fab-7 tech stocks, the remaining S&P 493 is down YTD.

I have added a 3rd tab to the Excel workbook which shows forecasts and comparisons for the 7 stocks in our Small-Cap Growth Portfolio and the 12 stocks in our High Yield Income Portfolio. I've moved a high percentage of my own portfolio into stocks that pay dividends. Some investors think that stocks that pay high dividends are risky and don't have a lot of share price upside. In our HY portfolio, the 4 minerals companies (BSM, KRP, STR and VNOM) and the 4 upstream companies (CIVI, CTRA, HME.V and IPO.TO) have significant potential for share price increases. They pay high dividends because they are generating a lot of free cash flow from operations. The only one that concerns me a bit is CTRA because it is a "gasser".

The spreadsheet under Tabs 2 & 3 shows each company's percentage of production on a BOE basis that is natural gas and NGLs in column Y.

The 4 midstream companies (AM, ENB, OKE, PAGP) in the High Yield Income Portfolio are the "Safe Bets" because of the super strong balance sheets & long-lived assets that generate steady revenues, but they do have lower yields. ENB and PAGP have already announced increased dividends. I expect OKE to also increase its dividends. PAGP's dividends should be treated as return of capital this year; a nice perk that I was not expecting.

5 of the Sweet 16 (BTE, CPG, SBOW, TALO, VTLE), 3 of the Small-Caps (KGEI, REI, ROK.V) and 2 of the High Yield stocks (STR, IPO.TO) are trading below book value. I cannot find any justification for any of these companies to trade below book value. InPlay Oil (IPO.TO and IPOOF) is profitable, has a strong balance sheet, is going to generate a lot of free cash flow this year and it pays a nice monthly dividend (8.3% annual yield).

Three of the Sweet 16 (DVN, FANG, EOG) also pay really nice variable dividends. Devon's working on a takeover of EnerPlus (ERF), which looks like a good fit for me. Devon is a first-class outfit that I have followed for decades.

I added Talos Energy (TALO) to the Sweet 16 because it is going to report strong production growth for Q4, Q1 and Q2. It is closing a BIG acquisition in March that will add lots of high-quality Running Room.

EQT and MGY will be reporting Q4 results this coming week.