The Sweet 16 Growth Portfolio for 2019

[dan_s]

My spreadsheet that lists the Sweet 16 for this year can now be viewed and downloaded from the EPG website.

I update the spreadsheet each weekend; updating the First Call price targets and tweaking my valuations if I get some new information about the company.

For each company I show:

> My "Fair Value Estimate" compared to First Call's price target. My valuation is what I believe each company's' Net Asset Value ("NAV") or break-up value is today.

> Proven reserves split between liquids and natural gas

> Primary product (oil or gas)

> Market value compared to book value. A viable upstream company should NEVER trade below book value, but 8 of the 16 were trading below book value when the market opened on Jan 2.

> Earnings per share for 2017, Q1 to Q3 2018 and my forecasts for Q4 2018 and 2019. NOTE that Actuals are "Reported EPS" and forecasts are "Adjusted EPS", which are comparable to First Call's EPS estimates. Companies that have a lot of their future production hedged will report earnings much different than my forecasts, primarily be cause GAAP rules for hedge accounting are very large (and distortive) for quarters with big swings in commodity prices. Very few people really understand GAAP hedge accounting rules, but just remember that if a company has a lot of oil hedged and the oil price goes down, the book a large unrealized gain on their hedges.

> My operating cash flow per share forecast for 2019. I consider operating CFPS to be the most important number in valuing an upstream company. Remember: "Cash pays the bills, not earnings".

The Sweet 16 is a "Growth" portfolio. All of these companies have lots of extremely valuable undeveloped leasehold in America's top producing regions. This is what makes all of them PRIME TAKEOVER TARGETS. Two of the Sweet 16 (NFX and RSPP) were taken over last year, and I think 2 to 4 of them will be taken over this year by larger companies.

Each Sweet 16 company forecast/valuation model can also be viewed and downloaded from the EPG website. They are Excel spreadsheets that can be valuable tools when doing your own due diligence. They are macro driven spreadsheets that adjust automatically if you change production and commodity price assumptions at the bottom.

[dan_s]

I hope all of you take the time to look at some of the individual company forecasts models. All 16 companies are profitable in Q4 2018 and in Q1 2019 EVEN WITH $45/BBL WTI OIL PRICE.

"FEAR" causes investors to make knee jerk reactions without even looking at the numbers.

On the main spreadsheet you can see that as a group the Sweet 16 earnings increased by 55% year-over-year in 2018.