Sweet 16 Update - August 14

[dan_s]

Despite rock solid first half results, our Sweet 16 Growth Portfolio is now down 7.5% YTD. This compares to the S&P 500 Index, which is down 5.2% YTD.

Obviously, investors are worried. The U.S. debt downgrade sent a shockwave through the market. It is clear we have a dysfuntional government that is addicted to spending money. Many investors have pulled their money totally out of the stock market and put it into government bonds, which makes little sense to me but they just don't know what else to do.

IMO "Corporate America" is in much better shape than "Government America". If fact, if the government would get the heck out of the way, Corporate America would lead a recovery, especially the energy sector.

I've gone over the 2nd quarter reports from most of the Sweet 16 and I will have all of my forecast models updated this week. What I'm most excited about is the exposure we have to the Bakken Shale and Eagle Ford. We have 8 companies in the portfolio that have significant exposure to these outstanding resource plays. All of them are telling me that their production will be up sharply in the 3rd quarter. Recoverable reserves per well in the Bakken and Eagle Ford are going up. This means we are heading toward some very impressive year-end reserve reports.

Brigham Exploration (BEXP) is hosting our luncheon in Houston on August 23. You do not want to miss their "Bakken Shale Update". Seating is limited to 120, so sign up early. We already have over 80 registered.

The Sweet 16 is heavily weighted to oil, so it does move in lockstep with the price of oil. The long-term trend for higher oil prices is still in place. I will be discussing this at tomorrow's luncheon so log on to the webcast if you're interested.

BEXP and CLR have strong growth locked in for at least the next five years. My Fair Value estimates are more than 30% higher than their current prices and they both have a lot more upside. DNR is our "Stealth" Bakken company. They are ramping up to seven operated rigs in the Bakken and will report strong production growth this quarter.

Gulfport Energy (GPOR), which is up 29.1% YTD, looks very good. They sell 85% of their oil into the Gulf Coast market at a $15 to $20/bbl premium to WTI. They are also building a large position in the Utica Shale that will be the "Big Thing" next year. On their conference call GPOR said they plan to drill at least 20 Utica Shale wells in 2012. They hope to spud the first well in December.

I will send out a new "Sweet 16 Detailed Update" to our members by August 22.