Sweet 16 Update - April 30

[dan_s]

Four of the Sweet 16 (AR,EQT, RRC and CTRA) announced Q1 results last week that beat my forecast and they all provided detailed guidance that increases the confidence in my forecast models. I now believe that future oil prices used in all of my models are reasonable and natural gas & NGL prices are probably too low, but I would rather err on the side of being too conservative.

Updated valuations
> Antero Resources (AR) increased from $46 to $60 per share.
> EQT Corp (EQT) increased from $50 to $59 per share.
> Matador Resources (MTDR) increased from $82 to $86 per share.
> Range Resources (RRC) increased from $46 to $51 per share.

Note that all of my forecast models are based on commodity prices that are net of estimated cash settlements on their hedges.

For the week ending April 29 the Sweet 16 lost 1.94% all of which happened on Friday as the overall market sold off. The fundamentals support much higher stock prices for all 16 companies. The Sweet 16 is up 44.24% YTD and the group is trading at a 67.09% discount to my current valuations. The Sweet 16 as a group is trading at just 2.92X annualized operating cash flow per share. That is an extremely low valuation for companies of this size and quality.

The S&P 500 Index lost 2.94% during the week and is now down 13.31% YTD. Overall market selloffs like this drag down even super profitable companies like our Sweet 16. This is called "Market Risk" as fund managers are forced to "throw out the babies with the bath water".

The five "gassers" lead the pack:
> Comstock Resources (CRK) up 110.51% YTD and should go higher when they announce Q1 results on May 3.
> Antero Resources (AR) up 101.14% YTD
> EQT Corp. (EQT) up 82.26% YTD
> Range Resources (RRC) up 67.92% YTD
> Coterra Energy (CTRA) up 51.53% YTD

The fundamentals for natural gas and NGLs is very strong. I will discuss this on my Saturday podcast.

Within the large-caps, I like Continental Resource (CLR) up 24.15% YTD, but still trading at a 60.2% discount to my valuation, EOG Resources (EOG) up 31.44% YTD, but still trading at a 44% discount to my valuation and Ovintiv (OVV) up 51.90%, but still trading at a 56.3% discount to my valuation. I give all three of these companies A+ safety ratings.

Four companies (CPE, ESTE, LPI and NOG) are trading at less than half of my valuations and all of them are going to report strong Q1 results. These are all small-caps, so they don't get the Wall Street Gang coverage they deserve.

The overall market volatility will remain high and under pressure from the Feds tightening, but our Sweet 16 are on pace for very strong financial results this year. This world's "Energy Crisis" will get a lot worse before it gets better. Consumers are going to pay a lot more for energy in 2022 and 2023 and our elected officials deserve most of the blame. We need much smarter and open-minded people running this government.