Sweet 16 Update - July 21

[dan_s]

On Thursday and Friday, I updated all 16 of the individual company forecast/valuation models.
> For Q2 I am using the prices of $73/bbl for WTI oil and $2.35/mcf for HH natural gas.
> I checked the news / press releases for each company.
> I checked the latest analysts' reports and updated price targets submitted to TipRanks.
> I compared my valuations to the TipRanks average price targets. I did notice that the price targets submitted to TipRanks are still based on a wide range of oil & gas price assumptions. I believe oil prices will soon be going a lot higher ($80 it Q3 and $90 or higher in Q4) and I believe natural gas prices will move over $3.00 but struggle to stay over $3.00 until we get too mid-2024 when we have more clarity on LNG export capacity and other supply/demand forecasts. Weather will continue to be the primary driver of U.S. natural gas prices. The long-term outlook for natural gas prices is very bullish, but now is the time to stay overweight in oil.

For the week ending July 21 the Sweet 16 gained 5.6% and it is now (finally) up 1.52% YTD.
The S&P 500 Index gained 0.81% and is now up 18.15% YTD. < The stock market is telling me a recession is unlikely.

As I have posted here many times: This year reminds me of 2010. I believe we could see the Sweet 16 gain over 50% before year end. These stocks are trading at very low multiples of operating cash flow and five companies, which are very profitable (CPE, CPG, ESTE, VTLE and SBOW) are still trading below book value. That is insane! No profitable upstream oil & gas companies with the running room they have should be trading below book value. CPE and VTLE are the two most profitable companies in the Sweet 16 on a per share basis and they are both trading for less than 2X operating cash flow per share.

It is a bit weird that two of our gassers (EQT up 17.97% and RRC up 19.90%) are leading the pack. IMO they are the highest quality large-cap gassers you can own.

Permian Resources (PR) has moved into 2nd place, up 19.68%.

SilverBow Resources (SBOW) is finally getting the attention it deserves. It is up 12.52% YTD and still trades at a deep discount to my valuation of $63/share, which I believe is based on conservative assumptions.

Antero Resources (AR) will report a Q2 loss. It is down 21.78% YTD but it will survive. Q2 should be the low point of the year for all of our gassers.

My Top Pick today is Earthstone Energy (ESTE). It is the most aggressive growth company and it is heavily weighted to oil. They are working with Northern Oil & Gas (NOG) to close a $1.5 billion acquisition in the Permian Basin that is going to set up both companies for incredible growth in 2024. Both companies have outstanding management teams and a lot of high-quality running room.

I will be working on the newsletter this weekend that I hope to publish on Monday.

Sabrina and Jeff are on vacation until Sunday, so if you have any problems with the website or finding something send me an email ( dmsteffens@comcast.net ) and I will try to help.

Hang Tough. The "Big Paradigm Shift" has begun and lots of money will be pouring into our three model portfolio companies over the next six month.

[ChuckGeb]

Do you have a Q2 earnings release calendar schedule for your picks?

[dan_s]

See the right side of Tab 1 on the Sweet 16 summary spreadsheet that I just posted to the EPG website.