Sweet 16 Update - July 3
Posted: Fri Jul 03, 2020 9:26 am
The markets are closed for "Independence Day Eve", so I'm updating the Sweet 16 a day early.
For the four days ending July 2 the Sweet 16 gained 10.96% and it is up 54.45% since Good Friday (April 10), the day I picked at the peak of pandemic hype.
During the same periods the S&P 500 Index gained 4.33% for the week and it is up 12.19 since Good Friday.
Only two stocks in the portfolio are down:
> Comstock Resources (CRK) is down 28.73% since Good Friday, but it is down only 16 cents or 3.4% since being added to the portfolio on May 16. Comstock is a "gasser" and it is down because of near-term weakness in natural gas prices and because it issued some common stock to take out preferred stock. Comstock is controlled by Jerry Jones, owner of the Dallas Cowboys. The Company is profitable and should generate about $100 million of free cash flow from operations this year. My valuation of $10.00 compares to First Call's recently updated price target of $8.88. CRK closed at $4.49 on July 2.
> Concho Resources (CXO) is down 2.41% since Good Friday. It is a rock solid Permian Basin company that is on track to generate more than $2.2 Billion of cash flow from operations this year. Over 75% of their Q2 to Q4 oil is hedged at a weighted average of $57/bbl, locking in about $600 million of free cash flow from operations. First Call's current price target is $74.
If you are up for a wild ride, take a look at Matador Resources (MTDR). Since mid-March the stock has traded from $1.20 to $12.21. My valuation of $13.00 compares to First Call's price target of $9.53.
Callon Petroleum (CPE) is up 131.37% since Good Friday, but it closed July 2 at a 205% discount to my valuation of $3.60 per share. Why? Most of the Wall Street Gang disapproved of their all-stock merger with Carrizo Oil & Gas that closed on December 20, 2019. In the last 3 months, 7 ranked analysts set 12-month price targets for CPE. The average price target among the analysts is $1.26, but the valuations range from $0.55 to $3.00. During crazy times like pandemics, investors tend to focus on the worst case scenario.
> Based on the Company's audited March 31, 2020 balance sheet the book value per share is $8.67.
> My forecast of $1.55 operating cash flow per share this year is actually lower than First Call's estimate of $1.79, which is 2 cents higher than when I updated my forecast model on June 19.
> With ~95% of this year's oil production hedged at $43/bbl, revenues of approximately $1.1 Billion (including cash settlements on hedges) appear to be locked in.
It took awhile, but the Wall Street Gang finally noticed how under-valued Ovintiv (OVV) was. At $10.05 the stock is up 130% since Good Friday, but if WTI oil does rebound to $60/bbl the top of the 52-week range ($28.75) is definitely possible. The Company's production of 571,300 Boe per day is second only to that of EOG Resources (EOG).
I have reviewed and updated my stock valuations and First Call's price targets for all 16 companies on the main Sweet-16 spreadsheet that will be posted to the EPG website this afternoon. Just log on and then click on the Sweet 16 tab.
For the four days ending July 2 the Sweet 16 gained 10.96% and it is up 54.45% since Good Friday (April 10), the day I picked at the peak of pandemic hype.
During the same periods the S&P 500 Index gained 4.33% for the week and it is up 12.19 since Good Friday.
Only two stocks in the portfolio are down:
> Comstock Resources (CRK) is down 28.73% since Good Friday, but it is down only 16 cents or 3.4% since being added to the portfolio on May 16. Comstock is a "gasser" and it is down because of near-term weakness in natural gas prices and because it issued some common stock to take out preferred stock. Comstock is controlled by Jerry Jones, owner of the Dallas Cowboys. The Company is profitable and should generate about $100 million of free cash flow from operations this year. My valuation of $10.00 compares to First Call's recently updated price target of $8.88. CRK closed at $4.49 on July 2.
> Concho Resources (CXO) is down 2.41% since Good Friday. It is a rock solid Permian Basin company that is on track to generate more than $2.2 Billion of cash flow from operations this year. Over 75% of their Q2 to Q4 oil is hedged at a weighted average of $57/bbl, locking in about $600 million of free cash flow from operations. First Call's current price target is $74.
If you are up for a wild ride, take a look at Matador Resources (MTDR). Since mid-March the stock has traded from $1.20 to $12.21. My valuation of $13.00 compares to First Call's price target of $9.53.
Callon Petroleum (CPE) is up 131.37% since Good Friday, but it closed July 2 at a 205% discount to my valuation of $3.60 per share. Why? Most of the Wall Street Gang disapproved of their all-stock merger with Carrizo Oil & Gas that closed on December 20, 2019. In the last 3 months, 7 ranked analysts set 12-month price targets for CPE. The average price target among the analysts is $1.26, but the valuations range from $0.55 to $3.00. During crazy times like pandemics, investors tend to focus on the worst case scenario.
> Based on the Company's audited March 31, 2020 balance sheet the book value per share is $8.67.
> My forecast of $1.55 operating cash flow per share this year is actually lower than First Call's estimate of $1.79, which is 2 cents higher than when I updated my forecast model on June 19.
> With ~95% of this year's oil production hedged at $43/bbl, revenues of approximately $1.1 Billion (including cash settlements on hedges) appear to be locked in.
It took awhile, but the Wall Street Gang finally noticed how under-valued Ovintiv (OVV) was. At $10.05 the stock is up 130% since Good Friday, but if WTI oil does rebound to $60/bbl the top of the 52-week range ($28.75) is definitely possible. The Company's production of 571,300 Boe per day is second only to that of EOG Resources (EOG).
I have reviewed and updated my stock valuations and First Call's price targets for all 16 companies on the main Sweet-16 spreadsheet that will be posted to the EPG website this afternoon. Just log on and then click on the Sweet 16 tab.