Sweet 16 Update - March 26
Posted: Sat Mar 26, 2022 9:56 am
We have moved into the 2nd inning of "The Big Paradigm Shift".
During the week ending March 25, the Sweet 16 gained 18.12% and it is now up 49.57%.
The S&P 500 Index gained 2.87% during the week, but it is still down 4.68%.
The Big Paradigm Shift: The belief that oil & gas prices will stay high all year is spreading on Wall Street. People that manage massive amounts of money, who would not touch oil & gas upstream companies a year ago, are just beginning to learn that these company can be extremely profitable. They are also learning that this world has an energy shortage that looks like it will turn into a multi-year energy crisis. Oil, natural gas and NGL prices are now being "rationed by price". My hope is that we are not forced to ration these important commodities in the physical world. AOC's Gang won't like gasoline rationing.
The U.S. and all OECD countries run on diesel. If you've been paying attention to my podcasts you know that U.S. distillate inventories are "dangerously low"; 17% below the 5-year average for this time of year. My concern is that high prices and physical shortages of diesel during the planting season will cause food shortages late this year. It takes a lot of diesel to plant and harvest crops. Plus, we have physical shortages of fertilizer. Plus Plus, we have an leadership team that is clueless on how to handle this problem. I'm building up a food inventory.
The Sweet 16's surge last week was driven by spikes in the stock prices of all five of our "gassers".
AR leads the pack up 78.51%, RRC is in 2nd place up 76.72%.
CRK (up 58.47%), CTRA (up 52.16%) and EQT (up 57.40%) are now all in the upper half of the Sweet 16 YTD.
When you look at my current valuations, keep in mind that my natural gas price assumptions for HH natural gas prices are $4.25/MMBtu for 2022 and $4.00/MMBtu for 2023. The NYMEX strip for the remainder of 2022 is $5.577 for MAY22 and $5.842 for DEC22. If this is the "New Normal" for natural gas prices, there is significant upside for all five of our gassers. This Paradigm Shift is why I opened with the statement that we have moved into the 2nd inning of the Big Paradigm Shift.
Earthstone Energy (ESTE) is the smallest company in the Sweet 16. It is up 28.98% YTD (crushing the S&P 500 Index), but only good for last place in the Sweet 16. It closed on March 25 at $14.11, which is 133.9% below my current valuation of $33.00. I am going to highlight ESTE on this afternoon's podcast.
I am often asked by EPG members if it is time to harvest some gains. That is totally up to you. Personally, I am much better at timing purchases than I am at timing sales of the stocks in my own portfolio. My advice is that if you have a large position in the Sweet 16, keep an eye on the stocks that are getting close to my valuations. Download my forecast models to your computer and look over the model assumptions to see if you agree with them.
For the "gassers", CTRA and EQT are both sitting at discounts of 10.7% to my valuations. Based on my models, CRK still has the most upside (71.6% to my current valuation of $22.00. In my attempt to justify CRK's share price being so low compared to its fundamentals, I came up with the theory that fund managers are concerned about Jerry Jones' large stake in the company. Obviously, Mr. Jones does not need any more dividend income and lots of funds only buy the dividend payers. However, AR also does not pay dividends and it leads the pack. CRK is the largest producer of Haynesville Shale gas and it has a lot of running room.
Watch my podcast for more on the Sweet 16.
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PS: In the 3rd inning of the Big Paradigm Shift, we should see valuation multiples increased by the Wall Street Gang. That's when the BIG GAINS happen. Based on my forecasts, the Sweet 16 is trading at an average PE ratio of 6.4X 2022 EPS. The S&P 500 Index trades at 18X to 20X EPS.
During the week ending March 25, the Sweet 16 gained 18.12% and it is now up 49.57%.
The S&P 500 Index gained 2.87% during the week, but it is still down 4.68%.
The Big Paradigm Shift: The belief that oil & gas prices will stay high all year is spreading on Wall Street. People that manage massive amounts of money, who would not touch oil & gas upstream companies a year ago, are just beginning to learn that these company can be extremely profitable. They are also learning that this world has an energy shortage that looks like it will turn into a multi-year energy crisis. Oil, natural gas and NGL prices are now being "rationed by price". My hope is that we are not forced to ration these important commodities in the physical world. AOC's Gang won't like gasoline rationing.
The U.S. and all OECD countries run on diesel. If you've been paying attention to my podcasts you know that U.S. distillate inventories are "dangerously low"; 17% below the 5-year average for this time of year. My concern is that high prices and physical shortages of diesel during the planting season will cause food shortages late this year. It takes a lot of diesel to plant and harvest crops. Plus, we have physical shortages of fertilizer. Plus Plus, we have an leadership team that is clueless on how to handle this problem. I'm building up a food inventory.
The Sweet 16's surge last week was driven by spikes in the stock prices of all five of our "gassers".
AR leads the pack up 78.51%, RRC is in 2nd place up 76.72%.
CRK (up 58.47%), CTRA (up 52.16%) and EQT (up 57.40%) are now all in the upper half of the Sweet 16 YTD.
When you look at my current valuations, keep in mind that my natural gas price assumptions for HH natural gas prices are $4.25/MMBtu for 2022 and $4.00/MMBtu for 2023. The NYMEX strip for the remainder of 2022 is $5.577 for MAY22 and $5.842 for DEC22. If this is the "New Normal" for natural gas prices, there is significant upside for all five of our gassers. This Paradigm Shift is why I opened with the statement that we have moved into the 2nd inning of the Big Paradigm Shift.
Earthstone Energy (ESTE) is the smallest company in the Sweet 16. It is up 28.98% YTD (crushing the S&P 500 Index), but only good for last place in the Sweet 16. It closed on March 25 at $14.11, which is 133.9% below my current valuation of $33.00. I am going to highlight ESTE on this afternoon's podcast.
I am often asked by EPG members if it is time to harvest some gains. That is totally up to you. Personally, I am much better at timing purchases than I am at timing sales of the stocks in my own portfolio. My advice is that if you have a large position in the Sweet 16, keep an eye on the stocks that are getting close to my valuations. Download my forecast models to your computer and look over the model assumptions to see if you agree with them.
For the "gassers", CTRA and EQT are both sitting at discounts of 10.7% to my valuations. Based on my models, CRK still has the most upside (71.6% to my current valuation of $22.00. In my attempt to justify CRK's share price being so low compared to its fundamentals, I came up with the theory that fund managers are concerned about Jerry Jones' large stake in the company. Obviously, Mr. Jones does not need any more dividend income and lots of funds only buy the dividend payers. However, AR also does not pay dividends and it leads the pack. CRK is the largest producer of Haynesville Shale gas and it has a lot of running room.
Watch my podcast for more on the Sweet 16.
-----------------------
PS: In the 3rd inning of the Big Paradigm Shift, we should see valuation multiples increased by the Wall Street Gang. That's when the BIG GAINS happen. Based on my forecasts, the Sweet 16 is trading at an average PE ratio of 6.4X 2022 EPS. The S&P 500 Index trades at 18X to 20X EPS.
