Today's Newsletter - Jan 28

[dan_s]

Since my December newsletter I updated all of the forecast/valuation models for the Sweet 16 and Small-Cap growth portfolios. The valuations in today's newsletter are based on a multiple of operating cash flow per share annualized for 2020+2021+2022 divided by 3 times a multiple that I think is reasonable. I am using rather low multiples for some of the companies that have not yet provided detailed guidance for 2021. If their guidance confirms the assumptions in my forecast models, my stock valuation will go up.

As I mention in the newsletter, there is nothing that I can see for any of the Sweet 16 that justifies them trading below book value. You can see which ones are trading below book value on the main Sweet 16 spreadsheet that I update each weekend. See Tab 1.

Before you invest in any of the companies mentioned in the newsletter, I highly recommend that you take the time to read my most recent profile on the company and review my forecast/valuation model. Each model is "macro driven", so you can download it to Excel and change the production and commodity price assumptions at the bottom and the model will automatically update earnings, cash flow and stock price valuation. Try it.

The models are based on WTI oil averaging $52.50/bbl for 2021 and $60/bbl for 2022. For natural gas I use HH gas prices of $2.75/MMBtu for 2021 and $3.00 for 2022.
Most of the companies have a lot of their production for 2021 hedged. Hedges are shown at the bottom of each forecast model.
The oil, gas and NGL prices "realized" and forecasted do include adjustments for regional differentials and cash settlements on their hedges.

I have been tracking and modeling all of the Sweet 16 and most of the Small-Caps for many years, so I do have a high level of confidence in my forecast models for them.

It is clear that money managers are rotating money from grossly overpriced sectors into the grossly oversold upstream oil & gas companies. The larger more well-known companies like our "Elite Eight" get most of the rotation money. Check out CLR today.