Energy Prospectus

Hi Dan,

I appreciate the diversity of stocks you follow and the in depth analysis. I understand about risk and the need to diversify.
At the same time, O & G not being all that familiar a field to me....my tendency is to lean toward the stocks you list as being most undervalued. The simplistic thinking (of we underinformed) being, hey, why not buy a stock that is half its real value instead of 75% its real value?
And then when you disclose what you are holding, my thought is "why not get the same things Dan obviously favors so much that he holds them?"

Could you discuss how much weight a newbie ought to give to the category of how undervalued you estimate a stock is?

And speak to why one might not want to get the stocks you are holding? (Of course you might be holding some for long term cap gain status)

I'm sure I'm not the only subscriber who values knowing what you value, even while wanting the detailed analysis and prospects you see.
Have you / Would you consider enhancing the newsletter with a star system, or "top pick" rating, or some such.......for those of us who might
want to hold no more than say, three mid-caps and three small caps?

regards, Dan B.

I get these questions all the time. It is very tough to know which stock will preform the best. I guess if I knew that I would be a multi-millionaire myself.

At EPG we try to present members with high quality choices. What you decide to actually invest in is up to you. I can make the case why each company in the Sweet 16 should go up, but that does not mean it will. I have found that, over time, most of them do approach my Fair Value Estimates. The market has been extremely risk adverse since the crash in 2008. I have never seen high quality E&P companies trade at such low multiples for so long. Logically, in such a low interest environment, the multiples on companies with double digit growth locked in would expand.

In the Sweet 16, I rank EOG and CLR as Core Holdings. These are the top producers in the Eagle Ford and the Bakken. They are good foundations to build your portfolio on. RRC and HP are also tops in their peer groups. Both should do very well if I am right about gas prices moving higher. Keep in mind that I am still using rather low natural gas prices in my forecast models to calculate Fair Value Estimates. That explains why RRC is getting close to my valuation. If the gas market tightens - which I think will happen this winter - RRC has a ton of upside. RRC is the #1 company in the Marcellus Shale, which is North America's top gas play.

As I discussed in this week"s newsletter, in a risk adverse market I think the larger companies will do better than the smaller companies. However, the companies in our Small-Cap Growth Portfolio definitely have significant upside potential. Small E&P companies carry a lot of risk because one dry hole can send them down fast.

My own selections don't always end up being the best, so I don't recommend blindly following what I do. Right now I have our IRA accounts heavily weighted to the companies in our High Yield Income Fund. Another strategy that I use is to sell Puts on the dips, just don't fall in love with this strategy and only do it with the understanding that you don't mind getting put to at the strike price.

I hope this helps.