Sweet 16 Update - May 31

[dan_s]

The Sweet 16 Growth Portfolio spreadsheet has been updated on the website:
> Tab 1 of the spreadsheet is a summary of my EPS and CFPS forecasts for each company
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 5-31-2014

The Sweet 16 are up a combined 18.6% YTD, compared to the S&P 500 which is up 4.1% YTD.

Devon Energy (DVN) is being added to the Sweet 16, replacing Gran Tierra Energy (GTE) which has been moved to our Small-Cap Growth Portfolio. I AM STILL VERY BULLISH ON GTE, but perceived geopolitical risk may hold it down until after the elections in Columbia. Regardless of how the election turns out, I think GTE will be fine.

I will be sending out updated profiles for Continental Resources (CLR) and Devon Energy (DVN) tomorrow via e-mail. Both of these large-caps are "Core Holdings" for me and they are going to report outstanding production and proven reserve growth this year.

Bonanza Creek (BCEI) is now drawing more attention. First Call's Price Target has increased $3.90/share since last week's update. My guess is that it will keep going up. Their recent acquisition is a really big deal.

Sanchez Energy (up 40.5% YTD) and Matador Resources (up 33.5% YTD) lead the pack. GPOR and SM are still down YTD and I think they will report strong growth this year, drawing more attention from Wall Street. GPOR just has to serve some time in the "Penalty Box" because they lowered their production guidance. First Call's target price is $75.52/share and I think there is a good chance GPOR gets there by year-end. SM is looking more and more like a "coiled spring" to me. When the market figures it out, this company could make a big move.

Oasis Petroleum (OAS) finally moved into positive territory up 5.4% YTD. Oasis is on-track to report 40% production growth this year. Adding this one to your portfolio at under $50/share sure looks like a good bet to me.

I will be working on Cimarex Energy (XEC) on Monday. XEC has a very strong balance sheet and they have 15% to 20% production growth locked in for years. First Call's price target for XEC is up more than $12/share in May and I think it will keep going up as they are going to report quarter-after-quarter of solid results this year. XEC is a very high quality company with a strong operations team.

CLR and RRC are both within 10% of my valuation, but don't let that frighten you away. CLR is #1 in the Bakken and RRC is #1 in the Marcellus Shale. That makes them both "prize holdings" by a lot of mutual funds. Companies of this quality deserve to trade at very high multiples because they have HUGE 3P reserve potential. Take a look at CLR's most recent presentation on their website and you will see the incredible potential they have as they move into full development mode in the Williston Basin. They are planning to drill more than 20 stacked horizontal wells per pad in parts of the Williston. CLR also has a new play they call SCOOP, which is just starting to get noticed. [Newfield Exploration (NFX) also has exposure to SCOOP. I will publish a profile on NFX next week.]

As a group, the Sweet 16 is now trading at just 6.14 X my estimated operating cash flow per share forecast. That is low and my forecasts are based on oil & gas prices below the current commodity prices. You can see the Current Share Price / CFPS multiple for each company on the right side of the Sweet 16 spreadsheet (Tab 1).

If you want to add more exposure to natural gas, look at UNT, RRC, DVN, GPOR, XEC, EOG and SM

Hi-Crush Partners LP (HCLP) is hosting a luncheon for us in Houston on Friday, June 6. HCLP has been a HUGE winner for us and we are expecting a record crowd. Seating is limited to 120, so register early if you wish to attend.

Hang tough, the 2nd half of this year is going to get very interesting.

PS: We only picked up three new members in May, which is not going to cut it. I am going to double my own efforts to increase our membership and I hope you guys will help. If you have friends that like market beating growth and high yield (who doesn't) tell them about EPG and encourage them to join. Send them a copy of my last newsletter. If you know of an investment club that needs speakers let me know. We usually pick up new members at my speaking engagements and I really like to meet new people.

PPS: 20 couples have signed up for next February's EPG Cruise to the Western Caribbean. The special group offer has expired, but if you still want to go call Susan (281-793-5676) and she will help you find the best deal. We are planning to have Great Time!