Sweet 16 Update - August 6
Posted: Fri Aug 05, 2016 7:03 pm
After a rough start on Monday, the Sweet 16 was up sharply for the week ending August 5.
The group was up 4.29% for the week and is now up 34.62% year-to-date. This compares to the S&P 500 Index that is up 6.80% YTD.
15 of the 16 companies have announced 2nd quarter results, with PDCE announcing next week.
This is a group of rock solid companies. All of them have announced solid Q2 results and they are all up YTD. All 16 companies are generating strong cash flow from operations and they all have a lot of running room for continued production and proven reserve growth.
Parsley Energy (PE) impressed me the most. This Permian Basin company is on-track for more than 60% production growth and they should have a BIG increase in proven reserves at year-end. Most of Parsley's oil production is hedged through June 30, 2017 and it has a balanced production mix.
It is EXTREMELY IMPORTANT that you know the production mix (natural gas, crude oil and NGLs) that your companies produce. These products all trade on different markets. I show the production mix at the bottom of each individual forecast model.
I have lowered my valuation for Diamondback Energy (FANG) because it is now trading at more than 23X operating cash flow per share. Even their valuable stake in Viper Energy Partners (VNOM) cannot justify a multiple that high. If you own FANG, I suggest you consider harvesting the gain and moving the money to PE or Concho Resources (CXO), the other two pure plays on the Permian Basin.
SM Energy (SM) is currently trading at less than 3X operating cash flow per share. SM's production mix gives them a lot of exposure to rising natural gas and NGL prices.
I lowered my valuation of Gulfport Energy (GPOR) by $1.00, but there is nothing wrong at all with this high quality Utica Shale company. It is still trading at a 71% discount to my valuation and if natural gas prices go where I think their heading, GPOR should make a nice run into year-end. GPOR made a big run up at the end of the last oil price cycle (2008-2010) and I see the potential for it happening again.
The U.S. natural gas market is going to be a lot tighter by the time the next winter heating season arrives. Wall Street, which has a short-term outlook, will notice the gas market around October. Accumulating AR, RRC and GPOR now should pay off big by Christmas.
The Sweet 16 spreadsheet will be posted to the website on Saturday. My updated valuation and First Call's price target for each stock are shown under tab two of the spreadsheet. My updated forecast models for each company can be found by clicking on the Sweet 16 tab and then the logo of the company.
I will focus on the Sweet 16 in this weekend's podcast.
The group was up 4.29% for the week and is now up 34.62% year-to-date. This compares to the S&P 500 Index that is up 6.80% YTD.
15 of the 16 companies have announced 2nd quarter results, with PDCE announcing next week.
This is a group of rock solid companies. All of them have announced solid Q2 results and they are all up YTD. All 16 companies are generating strong cash flow from operations and they all have a lot of running room for continued production and proven reserve growth.
Parsley Energy (PE) impressed me the most. This Permian Basin company is on-track for more than 60% production growth and they should have a BIG increase in proven reserves at year-end. Most of Parsley's oil production is hedged through June 30, 2017 and it has a balanced production mix.
It is EXTREMELY IMPORTANT that you know the production mix (natural gas, crude oil and NGLs) that your companies produce. These products all trade on different markets. I show the production mix at the bottom of each individual forecast model.
I have lowered my valuation for Diamondback Energy (FANG) because it is now trading at more than 23X operating cash flow per share. Even their valuable stake in Viper Energy Partners (VNOM) cannot justify a multiple that high. If you own FANG, I suggest you consider harvesting the gain and moving the money to PE or Concho Resources (CXO), the other two pure plays on the Permian Basin.
SM Energy (SM) is currently trading at less than 3X operating cash flow per share. SM's production mix gives them a lot of exposure to rising natural gas and NGL prices.
I lowered my valuation of Gulfport Energy (GPOR) by $1.00, but there is nothing wrong at all with this high quality Utica Shale company. It is still trading at a 71% discount to my valuation and if natural gas prices go where I think their heading, GPOR should make a nice run into year-end. GPOR made a big run up at the end of the last oil price cycle (2008-2010) and I see the potential for it happening again.
The U.S. natural gas market is going to be a lot tighter by the time the next winter heating season arrives. Wall Street, which has a short-term outlook, will notice the gas market around October. Accumulating AR, RRC and GPOR now should pay off big by Christmas.
The Sweet 16 spreadsheet will be posted to the website on Saturday. My updated valuation and First Call's price target for each stock are shown under tab two of the spreadsheet. My updated forecast models for each company can be found by clicking on the Sweet 16 tab and then the logo of the company.
I will focus on the Sweet 16 in this weekend's podcast.