Sweet 16 Update - April 7
Posted: Sat Apr 07, 2018 10:31 am
FEAR and GREED have a lot to do with the day-to-day moves of the market. During the week ending April 6 the DOW average had triple digit moves each day; down big on Monday and Friday and up by 990 points during the three days in the middle. The big drop on Friday caused the S&P 500 Index to drop 1.37% for the week.
The DOW average opened on Monday, April 2 at 24,116 and closed on Friday, April 6 at 23,932. It felt a lot worse because of the big drop on Friday.
Our Sweet 16 Growth Portfolio moved down 4.61% and is now down 9.70% YTD. < This is hard to explain since oil prices are up ~20% YOY.
Pullbacks in both CXO and RSPP were the primary reasons for the big drop in the Sweet 16, but 14 of the 16 stocks moved lower.
None of my valuations changed because I am assuming $60/bbl WTI and $2.75/mcf HH for all future periods and those assumptions still seem reasonable to me.
> I reviewed each company's forecast/valuation model. My model for CXO won't change until I'm sure that the merger with RSPP will close. Regardless, the stock valuation should not change much since their offer to RSPP was slightly below my valuation.
> I am probably using too low of an oil price in the forecasts, but my gas and NGL prices may be a bit too high. Not enough to make changes in the stock valuations at this point.
BTW there were only slight movements in the First Call Price Targets.
As a group:
> The Sweet 16 is trading ~58% below my valuations
> The Sweet 16 is trading ~38% below First Call's price targets
NOTE: My valuations are not quite the same as the 12-month price targets that First Call shows. My valuations are what I think the company should sell for in an arms-length takeover as of today. Cash flow from operations, production & proven reserve growth rate and "running room" are the primary drivers of my valuations for each stock.
Only two of the Sweet 16 finished the week higher: Antero Resources (AR) and Gulfport Energy (GPOR). It seems that at least a few fund managers have noticed how under-supplied the U.S. natural gas market is today. BTW the overnight low in Sugar Land, Texas is expected to be 46F on Saturday. Texas is going to burn a lot of gas for space heating this weekend.
I have no idea what President Trump's "Trade War" with China means for the energy sector. My guess is "not much", but investors hate uncertainty.
I do know that demand for crude oil spikes every year in April, May and June as refiners ramp up to produce the transportation fuels that this world runs on.
Refiners are going to have to work extra hard this year because inventories of very important refined products (gasoline, diesel and jet fuel) are all much lower than they should be heading into the high demand period of the year.
The DOW average opened on Monday, April 2 at 24,116 and closed on Friday, April 6 at 23,932. It felt a lot worse because of the big drop on Friday.
Our Sweet 16 Growth Portfolio moved down 4.61% and is now down 9.70% YTD. < This is hard to explain since oil prices are up ~20% YOY.
Pullbacks in both CXO and RSPP were the primary reasons for the big drop in the Sweet 16, but 14 of the 16 stocks moved lower.
None of my valuations changed because I am assuming $60/bbl WTI and $2.75/mcf HH for all future periods and those assumptions still seem reasonable to me.
> I reviewed each company's forecast/valuation model. My model for CXO won't change until I'm sure that the merger with RSPP will close. Regardless, the stock valuation should not change much since their offer to RSPP was slightly below my valuation.
> I am probably using too low of an oil price in the forecasts, but my gas and NGL prices may be a bit too high. Not enough to make changes in the stock valuations at this point.
BTW there were only slight movements in the First Call Price Targets.
As a group:
> The Sweet 16 is trading ~58% below my valuations
> The Sweet 16 is trading ~38% below First Call's price targets
NOTE: My valuations are not quite the same as the 12-month price targets that First Call shows. My valuations are what I think the company should sell for in an arms-length takeover as of today. Cash flow from operations, production & proven reserve growth rate and "running room" are the primary drivers of my valuations for each stock.
Only two of the Sweet 16 finished the week higher: Antero Resources (AR) and Gulfport Energy (GPOR). It seems that at least a few fund managers have noticed how under-supplied the U.S. natural gas market is today. BTW the overnight low in Sugar Land, Texas is expected to be 46F on Saturday. Texas is going to burn a lot of gas for space heating this weekend.
I have no idea what President Trump's "Trade War" with China means for the energy sector. My guess is "not much", but investors hate uncertainty.
I do know that demand for crude oil spikes every year in April, May and June as refiners ramp up to produce the transportation fuels that this world runs on.
Refiners are going to have to work extra hard this year because inventories of very important refined products (gasoline, diesel and jet fuel) are all much lower than they should be heading into the high demand period of the year.