Sweet 16 Update - Jan 27
Posted: Sat Jan 27, 2024 12:54 pm
Thanks to a 7.6% increase in the price of oil during the week, the Sweet 16 gained 3.7% during the week ending January 26th, but it is still down 3.53% YTD.
The S&P 500 Index is up 2.24% thanks to seven large tech stocks, that IMO look extremely overvalued. The rush to invest in AI has caused a bubble in that sub-sector.
The "Elite Eight" for 2024 are now CPG, DVN, FANG, EQT, MTDR, OVV, PR, RRC. Size does matter in this business, so I consider these 8 to the be the safest for long-term investors. They all pay dividends and most of them have stock buybacks underway.
Now that I have updated all 16 forecast/valuation models, I think it is appropriate to look forward at PE ratios and operating cash flow multiples based on 2024 forecast.
> The average PE for the group is 6.69 based on Adjusted Net Income for 2024.
Silverbow (SBOW) and Vital Energy (VTLE) trade at the lowest PE ratios (3.07 and 3.83), partly because they are two of the three companies that do not pay dividends. Antero Resources (AR) has the third highest PE ratio (9.61) despite not paying a dividend.
> The average multiple of operating CFPS is 3.01. < Incredibly low for companies of this quality.
SBOW and VTLE also trade at the lowest CFPS multiples (1.09 and 1.56). Both companies are free cash flow positive, and I expect both of them to report solid Q4 2023.
VTLE has already reported Q4 2023 production that was more than 8,000 Boepd above my forecast.
SBOW recently closed the Chesapeake South Texas Acquisition that is a large deal and "transformative" for a company of this size. Their 2024 detailed guidance should help move the stock price to a more reasonable level.
I moved Diamondback Energy (FANG) back into the portfolio to replace Callon Petroleum (CPE) that is merging into APA Corp. (APA). FANG pays the highest dividends in the Sweet 16; 8.3% based on my forecast.
Devon Energy (DVN) also pays a nice variable dividend what should be a yield over 6.5% this year.
We should see several companies (AR, CRK, EQT and MGY) announce Q4 2024 financial results on February 13 & 14. As I mentioned in Thursday's webcast, Q4 results always take longer since the companies are required to finish their 3rd party reserve reports and their full-year financial audits before they can release Q4 results. We should see a few more companies release Q4 operating results over the next two weeks.
I expect all of the Sweet 16 to report GAAP Net Income that meets or exceeds my Q4 forecasts since realized oil, gas and NGL prices should exceed what my models are based on.
The S&P 500 Index is up 2.24% thanks to seven large tech stocks, that IMO look extremely overvalued. The rush to invest in AI has caused a bubble in that sub-sector.
The "Elite Eight" for 2024 are now CPG, DVN, FANG, EQT, MTDR, OVV, PR, RRC. Size does matter in this business, so I consider these 8 to the be the safest for long-term investors. They all pay dividends and most of them have stock buybacks underway.
Now that I have updated all 16 forecast/valuation models, I think it is appropriate to look forward at PE ratios and operating cash flow multiples based on 2024 forecast.
> The average PE for the group is 6.69 based on Adjusted Net Income for 2024.
Silverbow (SBOW) and Vital Energy (VTLE) trade at the lowest PE ratios (3.07 and 3.83), partly because they are two of the three companies that do not pay dividends. Antero Resources (AR) has the third highest PE ratio (9.61) despite not paying a dividend.
> The average multiple of operating CFPS is 3.01. < Incredibly low for companies of this quality.
SBOW and VTLE also trade at the lowest CFPS multiples (1.09 and 1.56). Both companies are free cash flow positive, and I expect both of them to report solid Q4 2023.
VTLE has already reported Q4 2023 production that was more than 8,000 Boepd above my forecast.
SBOW recently closed the Chesapeake South Texas Acquisition that is a large deal and "transformative" for a company of this size. Their 2024 detailed guidance should help move the stock price to a more reasonable level.
I moved Diamondback Energy (FANG) back into the portfolio to replace Callon Petroleum (CPE) that is merging into APA Corp. (APA). FANG pays the highest dividends in the Sweet 16; 8.3% based on my forecast.
Devon Energy (DVN) also pays a nice variable dividend what should be a yield over 6.5% this year.
We should see several companies (AR, CRK, EQT and MGY) announce Q4 2024 financial results on February 13 & 14. As I mentioned in Thursday's webcast, Q4 results always take longer since the companies are required to finish their 3rd party reserve reports and their full-year financial audits before they can release Q4 results. We should see a few more companies release Q4 operating results over the next two weeks.
I expect all of the Sweet 16 to report GAAP Net Income that meets or exceeds my Q4 forecasts since realized oil, gas and NGL prices should exceed what my models are based on.