Sweet 16 Update - October 19

[dan_s]

The Sweet 16 is now up 51.1% YTD. This is why you pay me the Big Bucks to be EPG members.

Remember when I said months ago that this year was a mirror image of what happened in 2010? In 2010 the Sweet 16 finished up 54% for the year, with more than half of the gain coming in the last quarter. That is exactly what is happening this year and I think we have more upside. Multiple expansion can take these rock solid growth companies a lot higher, so Hang Tough.

3rd quarter results are going to be very strong. WTI crude oil prices are holding over $100/bbl. with Brent (Eagle Ford, Permian Basin and Gulf Coast oil) firmly over $110/bbl. Natural gas is heading to over $4.00/mcf and maybe higher. NGL prices have moved much higher this quarter.

Five of the Sweet 16 (BCEI, CXO, XEC, GPOR and KOG) closed on Friday over my Fair Value Estimates. This does not mean they can't go much higher. Momentum can carry stocks way over their current break-up value, especially companies with double digit production and reserves growth locked in. I just recommend you take some of your profits and move to others which are still trading at a discount to my FVE. I will be taking a hard look at my valuations for each company when I get 3rd quarter results.

BCEI is up 102.2% YTD. XEC is up 91.3% YTD.

Every company in the Sweet 16 is now up YTD. It has taken quite awhile for EXXI to claw its way back from the Davy Jones dry hole. EXXI is still trading at more than 58% below my valuation.

IMO the best bets right now are DNR, EXXI, GTE, SM, UNT and WLL. I think SM could report very impressive Q3 results. They crushed my forecast in the 2nd quarter. They are primarily an Eagle Ford company, but I rarely see it mentioned in articles about the Eagle Ford. ROSE is another Eagle Ford company that should be getting more "love" from Wall Street.

This week a lot of money poured into the energy sector.

Here is something I want you all to keep in mind: Oil and gas prices were higher at the end of Q3 than at the end of Q2. Therefore, mark-to-market adjustments (as silly as they are) will cause some of these companies to report losses for the 3rd quarter. Investors that aren't as smart as we are may over-react to "reported earnings". Focus on "Adjusted Earnings" when you compare results to First Call's estimates. It is even more important to focus on cash flow per share.

The Sweet 16 is all about production and proven reserve growth. We want to own companies with double-digit production growth locked in for several years.

[dan_s]

I have posted an updated Sweet 16 Growth Portfolio spreadsheet under the Sweet 16 Tab. You must be a member and log in to download it. You can download it to Excel.

Tab 1 is a summary of the individual companies EPS and CFPS forecasts.

Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 10-19-2013.

Detailed forecast models for each company are also available under the Sweet 16. Just click on a company logo.