Sweet 16 Update - Dec 31, 2022

[dan_s]

Our Sweet 16 Growth Portfolio pulled back in December, but still finished the year up 36.30%, not including dividends.

An updated Sweet 16 summary spreadsheet will be posted to the EPG website later today.

It was a very bad year for the overall stock market, as the S&P 500 Index lost 19.44% during 2022. Ouch! for most of our IRA holdings.

The Top Four for 2022 were:
1. Antero Resources (AR) up 77.09%
2. Comstock Resources (CRK) up 69.47%
3. EQT Corp. (EQT) up 55.11%
4. Matador Resources (MTDR) up 55.04%

AR, CRK and EQT are three of our five "gassers". Range Resources (RRC) up 40.33% and SilverBow Resources (SBOW) up 29.07% also had good years. All five of these gassers are going to report very strong results for Q4 and Q1. The big dip in the jet stream that is bringing lots of snow and cold to the western U.S. is drifting east, so natural gas prices should rebound next week. Regardless, all five will get much higher realized gas prices year-over-year in Q1 since they have a lot more unhedged gas in 2023.

For example, Comstock Resources (CRK) realized natural gas price (net of cash settlements on their "Bad Hedges") was just $3.53/mcf in Q1 2022. If HH natural gas averages $4.50/mcf in Q1 2023 they should report more than a $150 million increase in operating cash flow YOY in Q1 2023. Comstock is the closest company to a pure gasser. 99% of their production is dry gas, primarily from the Haynesville in Louisiana.

Callon Petroleum (CPE) down 21.50% and Laredo Petroleum (LPI) down 14.49% are the only two stocks down for the year. What's weird is that both of them are extremely profitable companies. Callon has reported higher earnings per share each quarter in 2022 and should report EPS over $18.00 for the year. Laredo is even better. It will be reporting EPS over $34.00 for 2022.

Since I started publishing a Sweet 16 portfolio each year (since 2001), the worst performing stocks one year are very often in the top four the next year. CPE and LPI both closed on 12/30 below book value, which should never happen for a profitable company. CPE and LPI should be leading the pack again in earnings per share in 2023 based on my forecasts.

2023 should be a very good year for the Sweet 16 unless we have a Major Recession that drags down demand for oil. As I explained in the newsletter, FEAR of a recession looks a lot worse than the likelihood of a recession to me. A Mild Recession will not cause a year-over-year decline in oil demand. Even the IEA, which always under-estimates oil demand, is forecasting an increase in demand.

"World oil demand is set to contract by 110,000 b/d y-o-y in 4Q22, reaching 100.8 million b/d, up by 130,000 b/d compared with last month’s Report. Strong gasoil use in key consuming countries outweighs weak European and Asian petrochemical deliveries. Oil demand growth has been increased to 2.3 million b/d (+140 kb/d) for 2022 as a whole and to 1.7 million b/d next year (+100 kb/d), when it will reach 101.6 million b/d." - IEA's December Oil Market
Report

My next Oil & Gas Market Update will be a live webinar on January 6th at 10AM CT. It will be on Zoom, so YOU MUST REGISTER TO ATTEND THE LIVE EVENT.

Prior to the Zoom call, I will be taking a hard look at each Sweet 16 company, so I will be ready to answer questions about them. For those of you new to EPG (we added 23 new members in December), our live Zoom calls are for members only and they are very "interesting".