Sweet 16 Update

[dan_s]

Despite outstanding first quarter results and solid outlooks for all of the companies in the Sweet 16, the portfolio has pulled back with the overall market and is now down 4.0% year-to-date. These stocks have much higher beta than the S&P 500 Index, so this is not surprising when you consider the overall bearish tone in the market.

This sure feels a lot like 2010. We got off to a good start in 2010 only to give it back in the 2nd quarter and flop around until September. The S-16 took off in mid-September and finished the year up 72%. If oil prices move higher this fall, which is looking to me more and more likely, we should see a nice run in these stocks. BUT WE MAY HAVE TO SUFFER THROUGH THIS BEAR MARKET ALL SUMMER FIRST.

I just updated the Sweet 16 summary spreadsheet that shows my Fair Value estimates compared to First Call's Price Targets for each stock. EPG members can log on and find it under the Sweet 16 Tab.

It will be tough to make money in this market but here are a few thoughts:
> EXXI trading just above 3X CFPS. The company has solid earning, cash flow and production growth locked in. I have nothing in my forecast model for Davy Jones or any of their Deep Shelf prospects. That program is just exploration upside. Energy XXI is going to report strong fiscal Q4 results and a very impressive year-end reserve report.
> EPM: Their new Mississippi Lime JV adds a layer of production growth that should kick in by year-end. Production really jumps when the DNR operated EOR project at Delhi Field reaches payout.
> All of the Bakken companies are going to report much better oil prices in Q2. The differential on Bakken oil to WTI improved by more than $15/bbl in April.
> GPOR has big upside on any good news from the Utica Shale. Regardless, production will be up in Q2
> GST: I like the pfd stock better but common looks very cheap under $2. They have more than enough cash flow to cover the pfd dividend with big jump in production starting in August. Strong production growth into year-end should draw some attention.
> MIND is close to reporting company record results for the quarter that ended 4-30-2012. This fiscal year's results will top last year's alltime record earnings and cash flows. Demand for seismic worldwide remains very high.
> RRC: For those bullish on natural gas. Range Resources is for you. Liquids production should be up quarter after quarter.
> ROSE: I consider it my Top Pick in the Eagle Ford
> TGA: Strong production growth and incredible exploration upside should offset the geopolitical risk.
> GTE: Funding all growth with cash flow.

My top Takeover Targets are: DNR, GPOR, GTE, OAS, EOG, WLL and ROSE

[dan_s]

CLR and all of our Bakken companies should put up outstanding 2nd quarter earnings. The differential on Bakken oil improved significantly in April & May. Realized prices will be close to Q1 and CLR will report a huge gain on their hedges.