Sweet 16 Update - Nov. 9

[dan_s]

During the week ending November 8th, thanks to Trump's re-election, our Sweet 16 Growth Portfolio gained 7.73%.
The S&P 500 Index gained 5.58% during the week.

All 16 companies reported Q3 results and most of them reported Operating Cash Flow that met or exceeded my forecasts.

APA Corp. (APA), Crescent Energy (CRGY), and EQT Corp. (EQT) reported losses based on GAAP rules because of one-time charges. My valuations have increased for all three.

APA is going to abandon their North Sea assets over the next several years due to UK's strict rules on emissions that would require APA to make significant capex to comply with the new rules. APA is going to focus their capital expenditures on the Permian Basin, Egypt and Suriname (huge upside for APA). APA's accrued abandonment costs will be spent over many years, so they don't have much impact on my valuation of APA. GAAP accounting rules are confusing and, in my opinion, create some very misleading quarterly financial results. My rule is "Cash pays the bills, not GAAP Net Income."

Read update on the potential upside APA has in Suriname here:
https://investor.apacorp.com/news-releases/news-release-details/apa-announces-final-investment-decision-first-oil-development

CRGY and EQT recently closed "transformative" mergers, which had large expenditures during the transition period. All three companies are set to become profitable and generate a lot of free cash flow in the future as a result of these acquisitions.

Magnolia Oil & Gas (MGY) leads the pack, up 28.75% YTD. EQT, MGY and EOG are getting the closest to my current valuations. I just finished reviewing our updated profile on EQT which will be posted to the website today. I hope to finish the MGY profile today.

We published the update profile on SM Energy (SM) this morning. The stock price is up 12.01% YTD, but it still trades at a 70% discount to my valuation of $74/share.

Vital Energy (VTLE) is a pure play on the Permian Basin that reported strong Q3 results that beat my forecast. Friday's closing price of $31.17 is just 39% of book value. No profitable company should trade below book value unless they are in a "Death Spiral".

Vital reported Q3 earnings per share of $5.64 for the quarter and they are on pace to generate more than $28/share of operating cash flow this year. The Company's production increased 17.1% year-over-year in 2023. At the midpoint of their guidance, production will be up another 36.7% YOY in 2024. "Aggressive Growth" Companies like VTLE and Matador Resources (MTDR) are out of favor with the Wall Street Gang until they aren't.

MTDR gained 8.78% last week and it still trades at a 55% discount to my valuation. Matador has been reporting some of the best well results in the Delaware Basin this year.

We published our updated profile on Baytex Energy (BTE) on Wednesday, November 6. BTE still trades below book value. Based on TipRanks' consensus forecast, which is slightly higher than my forecast, BTE's operating cash flow per share will be $2.40Cdn this year and close to that in 2025. BTE has been reporting some of the best wells in Canada this year and it has lots of Running Room in its core areas. There is no reason that BTE should be trading for less than 2X CFPS. It pays a decent dividend.

All 16 forecast/valuation models have been updated and they are now available on the EPG website under the Sweet 16 tab.