Sweet 16 Update - July 3
Posted: Sat Jul 03, 2021 9:38 am
Happy July 4th weekend! Let's all be proud to be Americans and thank God for Texas. I grew up in St. Louis, went to Tulsa University, got married in Oklahoma and moved to Sugar Land, Texas in 1994. "Life is Sweet in Sugar Land." If you don't live in Texas, my advice is get here as soon as you can.
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The Sweet 16 pulled back on Friday, which is often the case before a holiday weekend. Plus, the OPEC+ meeting on Friday failed to resolve their differences over how much oil the cartel will bring back to the market after July. UAE seems to be the problem, but Saudi Arabia and Russia will eventually get their way.
Read this: https://www.marketwatch.com/story/why-o ... 1625239914
Oil prices put in a mixed performance Friday as traders largely stuck to the sidelines. The OPEC+ proposal (supported by Saudi Arabia and Russia) to lift output by an additional 4 million barrels a day through the end of 2021 had been viewed as relatively bullish, given projections for demand to grow by around 6 million barrels a day over the same period.
On Friday, the U.S. benchmark, West Texas Intermediate crude for August delivery ended the day down 7 cents, or 0.1%, at $75.16 a barrel on the New York Mercantile Exchange. September Brent crude, the global benchmark, rose 33 cents, or 0.4%, to close at $76.17 a barrel on ICE Futures Europe.
Despite very strong oil and gas prices, the Sweet 16 pulled back 2.05% during the week ending July 2. The portfolio is still up 134.29% YTD, which compares to the S&P 500 Index that increased 2.01% for the week and is now up 15.87% YTD. Inflation and a weak dollar is good for equities and VERY GOOD for commodity based companies.
I have updated all of the 16 individual company forecast/valuation models for my increased commodity price deck ($72.50/bbl for WTI and $3.40/mcf for HH ngas in 2H 2021). All of my stock valuations increased and if their Q2 results and fresh guidance match my model assumptions the valuations will increase further. As a group, the Sweet 16 is still trading at just 3.8 X my 2021 operating cash flow per share forecasts. Based on my 2021 EPS forecasts, the PE ratio based on this year's net income is just 12. Ovintiv (OVV) is trading at a forward PE ratio of just 6.2.
Laredo Petroleum (LPI) is the only company approaching my revised valuation of $90/share. As I have posted here before, the stock price can still keep going up, but I need more clarity from the company on the impact of their two "Transformative Transactions" that closed on July 1st. The stock pulled back on Friday, probably because they sold some stock through their At The Market (ATM) program at an average price of $65.70 for net proceeds of $45.8 million. Laredo has 16.1 million total shares outstanding as of July 1, 2021, including shares issued in connection with the closing of the Sabalo acquisition.
In a red hot sector like this it is not uncommon for stock prices to move above First Call's price targets, which are just the average of the price targets sitting in the Reuters' database and that includes price targets that are up to six months old. On each of my individual forecast models I show some recently updated price targets from the Wall Street Gang. You can find them on TipRanks. I prefer TipRanks because their average price targets are only those published in the last three months; still a bit outdated, but not as bad as First Call.
Next week we will be publishing updated profiles on seven of the companies in our High Yield Income Portfolio.
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The Sweet 16 pulled back on Friday, which is often the case before a holiday weekend. Plus, the OPEC+ meeting on Friday failed to resolve their differences over how much oil the cartel will bring back to the market after July. UAE seems to be the problem, but Saudi Arabia and Russia will eventually get their way.
Read this: https://www.marketwatch.com/story/why-o ... 1625239914
Oil prices put in a mixed performance Friday as traders largely stuck to the sidelines. The OPEC+ proposal (supported by Saudi Arabia and Russia) to lift output by an additional 4 million barrels a day through the end of 2021 had been viewed as relatively bullish, given projections for demand to grow by around 6 million barrels a day over the same period.
On Friday, the U.S. benchmark, West Texas Intermediate crude for August delivery ended the day down 7 cents, or 0.1%, at $75.16 a barrel on the New York Mercantile Exchange. September Brent crude, the global benchmark, rose 33 cents, or 0.4%, to close at $76.17 a barrel on ICE Futures Europe.
Despite very strong oil and gas prices, the Sweet 16 pulled back 2.05% during the week ending July 2. The portfolio is still up 134.29% YTD, which compares to the S&P 500 Index that increased 2.01% for the week and is now up 15.87% YTD. Inflation and a weak dollar is good for equities and VERY GOOD for commodity based companies.
I have updated all of the 16 individual company forecast/valuation models for my increased commodity price deck ($72.50/bbl for WTI and $3.40/mcf for HH ngas in 2H 2021). All of my stock valuations increased and if their Q2 results and fresh guidance match my model assumptions the valuations will increase further. As a group, the Sweet 16 is still trading at just 3.8 X my 2021 operating cash flow per share forecasts. Based on my 2021 EPS forecasts, the PE ratio based on this year's net income is just 12. Ovintiv (OVV) is trading at a forward PE ratio of just 6.2.
Laredo Petroleum (LPI) is the only company approaching my revised valuation of $90/share. As I have posted here before, the stock price can still keep going up, but I need more clarity from the company on the impact of their two "Transformative Transactions" that closed on July 1st. The stock pulled back on Friday, probably because they sold some stock through their At The Market (ATM) program at an average price of $65.70 for net proceeds of $45.8 million. Laredo has 16.1 million total shares outstanding as of July 1, 2021, including shares issued in connection with the closing of the Sabalo acquisition.
In a red hot sector like this it is not uncommon for stock prices to move above First Call's price targets, which are just the average of the price targets sitting in the Reuters' database and that includes price targets that are up to six months old. On each of my individual forecast models I show some recently updated price targets from the Wall Street Gang. You can find them on TipRanks. I prefer TipRanks because their average price targets are only those published in the last three months; still a bit outdated, but not as bad as First Call.
Next week we will be publishing updated profiles on seven of the companies in our High Yield Income Portfolio.