Sweet 16 Update - July 16

[dan_s]

There was a lot of movement within the energy sector last week and the Sweet 16 was no exception. Obviously, the BHP bid for Petrohawk (HK) got a lot of attention on Wall Street late in the week. The larger companies in the Sweet 16, those with a lot of acreage in the shale plays, got the most buying interest on Friday. They are all still trading at a deep discount to what BHP is going to pay for Petrohawk.

Our Sweet 16 Growth Portfolio stats:
< Up 13.3% year-to-date (compares to S&P 500 which is up 5.8% YTD)
< Up 94.8% since 1-1-2010 (S&P 500 up 18.0% during the same period)

For the 16 companies currently in the portfolio, their combined earnings for 2010 were a total of $18.42/share. Based on my forecast models, the EPS for the group should be a combined $48.84 this year. A rather stunning improvement, I think you will all agree!

Keep in mind that the S-16 is heavily weighted to oil. If Goldman Sachs' forecast of $120/bbl oil by year-end proves to be correct (and I think it will be) then earnings for all the companies in the portfolio will accelerate into Q4.

I'm forecasting strong 2nd quarter results across the board for all sixteen companies.

MIND will have its normal 2nd quarter dip (their business is very seasonal) but the dip won't be anywhere close to what it was last year. MIND is on-track for the best year in the company's history and it is still trading at a 40% discount to my Fair Value estimate.

GPOR bounce back strong after taking a dip on the announced share offering. GPOR plans to become a major player in the Utica Shale play, which I think will draw a lot of attention next year. Early indications are that the Utica Shale is the next liquids rich shale play.

Sweet Sixteen companies that may draw more attention when 2nd quarter results come out:
> CLR will book a huge mark-to-mark positive adjustment on its hedges. Reported EPS may top $1/share.
> CRZO EPS should be up more than 1,000% quarter-over-quarter
> GTE and PMG should report more than 300% increases in EPS quarter-over-quarter since they won't have the large Columbian excise tax expense in Q2. Both are trading well below my estimated Fair Value and both are heavily weighted to oil production in areas that sell oil at a premium to WTI.
> TGA should report EPG of more than $0.30/share compared to $0.04/share in Q1

FX Energy (FXEN) will report a sharp increase in production. They are also very close to spudding the Kutno exploration well in Poland. Kutno is a HUGE prospect with more than 9 TCFE of unrisked potential. If the well is successful, look for the share pice to take off.

[bearcatbob]

Dan, With the HK deal is it possible that the oil price story is old news and reflected in the market while the NG story is the new news not yet in the market?

Bob