Sweet 16 Update - August 3

[dan_s]

What happened to our Sweet 16 and other model portfolio companies on Thursday and Friday is what I call "Market Risk". When there is a big stock market sell-off the fund managers often are forced to "throw the baby out with the bath water".

During the week ending August 2 the Sweet 16 lost 8.16% and is now up only 0.53% YTD. Ten of the 16 companies are now down YTD.
During the same week the S&P 500 Index lost 2.36%, but it is still up 11.76% YTD.

The volatility of oil & gas prices continues to frighten investors away from upstream oil & gas companies. Supply / demand fundamentals for oil-based products is actually strong and we should see U.S. and OECD petroleum inventories continue to fall. FEAR of a global recession is a powerful emotion.

9 of the Sweet 16 (APA, BTE, EOG, EQT, MGY, MTDR, NOG, OVV, and VRN) have reported Q2 results. EQT, because it is a large-cap "gasser", is the only one of the nine that reported Q2 results below my forecast. All of the companies, including EQT, are in much better financial shape today than they were on December 31, 2023. EQT closed the "Mega Merger" with Equitran Midstream in July, almost two months earlier than expected. The merger is going to give EQT a big revenue boost in 2H 2024.

Gold is up 26% year-over-year, closing at $2,442.80/oz on Friday. The historic oil to gold ratio of 1/20 says black gold should be over $122/bbl. The U.S. dollar declined last week, which normally supports higher oil prices, and it now looks like the Fed will lower interest rates in September. With likelihood of war directly between Israel & Iran increasing, oil should be higher.

IN MY OPINION, oil & natural gas prices are below their "Right Prices" based on the fundamentals and the geopolitical risk I see out there.

Count your blessings: "750 million people worldwide, or 1 out of every 10 people do not have access to electricity." I thank God daily for getting me to Texas where we have abundant and affordable energy.

Read this: https://oilprice.com/Energy/Energy-General/The-Worlds-15-Largest-Energy-Consumers.html

The Sweet 16 is my top priority. All of my Sweet 16 forecast/valuation models are up-to-date. We will be sending out an updated profile on Matador Resources (MTDR) late today and I will finish review of the update profiles for APA and MGY early next week.

Tomorrow and Monday I will be updating forecasts for the companies in our High-Yield Income Portfolio that have released Q2 results (BSM, KRP, CIVI, CTRA, AM, ENB and PAA). They are all profitable companies that generate a lot of free cash flow.

Hang tough. All of our upstream companies are profitable even if WTI hangs around $70/bbl for awhile. Market Forces are tightening up the U.S. natural gas market.