Sweet 16 Update - May 24

[dan_s]

During the week ending May 23 the Sweet 16 lost 3.14% and is now down 10.58% YTD.
During the same week, the S&P 500 Index lost 2.64% and is now down 1.34% YTD, but it is up 3.25% since Trump's "Independence Day" Tariff War.

WTI oil and HH Ngas found support levels on Friday and close up on the day.
For the week, WTI oil lost 0.71% to $61.53/bbl and HH Ngas was flat for the week, closing at $3.334/MMBtu on Friday

My Q2 forecasts are based on $62.50 WTI and $3.25 HH Ngas, so unless there are big oil & gas price moves, Q2 financial results for the quarter should be very close to my forecasts.

There is a high level of "noise" impacting the global oil price, but when the FEAR of the Tariff War fades and the Republicans finally pass the "Big Beautiful Tax Bill", I do expect oil prices to rebound back to the "Right Price" based on fundamental. FEAR of the Tariff War is really FEAR of a global recession. Today there is no indication that there will be a global recession. It would take a MAJOR recession for oil demand to decline.

The global oil market is much tighter than what's indicated by the oil price. U.S. and OECD petroleum inventories are below normal for this time of year and demand for transportation fuels in the U.S. spikes up during the Memorial Day weekend and stays high all summer. The "noise" caused by the OPEC+ quota increases is worse than the physical supply increase, which basically just replaces lower oil supply from Venezuela and U.S. oil production that has peaked and will soon be declining. In the U.S. the opposite of "Drill Baby Drill" is happening. As I have posted here many times, THERE IS NO WAY that upstream oil & gas companies are going to ramp up their drilling programs just to lower oil prices for Trump. It will take WTI firmly over $75/bbl. before we see an increase in the active rig count.

In my opinion, the "Right Price" for WTI is within the range of $75 to $85.

Three of the four "gassers" in the Sweet 16 (AR, EQT and RRC) + VRN are the only four stocks up this year. The only gasser down YTD is Coterra Energy (CTRA), which is down just 3.96% YTD.

All of the profiles and forecast models are now up-to-date on the EPG website.

I still have not decided on the replacement for Veren (VRN), which recently merged into Whitecap Resources (WCP.TO). Since Whitecap has decided not to trade on a U.S. exchange, I have decided NOT to add it to the Sweet 16.

Because I am bullish on U.S. natural gas prices, I took a hard look at Comstock Resources (CRK) on Friday.
CRK closed at $23.76 on May 23.
Comstock is a pure gasser with 99.95% of their total production being natural gas from the Haynesville and Deep Bossier in Louisiana and SE Texas. Based on my forecast/valuation model a reasonable current valuation is $25.00, so I have decided NOT to add it to the Sweet 16. That said, if the HH natural gas price does move firmly over $4.50/MMBtu, CRK has a lot of upside due to its direct access to the Gulf Coast LNG export facilities.

TipRanks: "In the last 3 months, 8 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $19.25." < The 8 price targets range from $12 to $27.

As of today, it looks like Riley Exploration Permian (REPX) deserves a promotion to the Sweet 16. Harry has it ranked #2 out of the 85 public energy companies that he follows. I will be highlighting it in the newsletter. My current valuation of REPX is $50/share.

I hope to finish the May newsletter on Monday.

[dan_s]

I have posted my updated forecast/valuation model for Comstock Resources (CRK) to the EPG website.

I believe its current share price is near Fair Value, but if you believe that we could see a "Bidding War" for natural gas supply soon (like we saw in August 2022) then CRK might be worth a BUY for you. Natural gas prices are set by regional supply/demand and there could be Bidding War for Haynesville gas soon.