Sweet 16 Update - August 20

[dan_s]

The Sweet 16 moved 4.70% higher during the week ending August 19 and it is now up 46.73% YTD.
The S&P 500 Index was unchanged for the week and up just 6.85% YTD.

West Texas Intermediate (WTI) is up $8.50/Bbl since August 1. IEA announced that the global oil market will be tight in the 3rd quarter and Saudi Arabia says they are interested in doing something to stabilize oil prices. OPEC's next meeting is in September. Until then, the speculative traders are closing their short positions on each pullback in oil prices.

A good sign for the Sweet 16 is that since the companies released Q2 results, First Call's price targets for all 16 companies have been raised. You should all get into the habit of checking the First Call price targets weekly. It is the direction more than the target that is important. Significant changes in FC price targets soon after quarterly results come out tell us what the analysts are seeing and hearing. It also tells us which companies they are going to recommend to their clients.

Overall the Sweet 16 is still 20% below my combined valuation. Diamondback Energy (FANG) has moved over my valuation of $95.00, but it is still below FC price target of $106.71. FANG is a pure play on the Permian Basin and Wall Street loves it. I recommend harvesting your gains on FANG and moving the money to CXO, PE, PXD of RSPP, the other Permian pure plays. PE has strong production and proven reserve growth locked in. Read the profile on Concho Resources (CXO) that we sent out yesterday.

Continental Resources (CLR) leads the pack, up 112% YTD. Its draw so much attention because it was beaten down to a ridiculously low price at the end of 2015 and this year it is reporting outstanding results in the SCOOP & STACK plays. If you are not familiar with STACK you must have been living in a cave for the past year. CLR, DVN, NFX and XEC are all reporting outstanding horizontal well results in STACK. It is the hottest oil play in North America and the only one with well results better than the Permian Basin.

EOG, SM and XEC also have core areas in the Permian Basin.

NBL and PDCE are focused on Colorado's DJ Basin.

We have three companies (AR, GPOR and RRC) whose primary products are natural gas and NGLs. I am expecting them to do very well in the 4th quarter as the North American gas market continues to tighten.

I have updated the profiles for AR, CXO, CLR, NFX, NBL, PE, RRC and RSPP. I hope to finish the other 8 profiles this week. EOG is next up.

The Sweet 16 spreadsheet has been posted to the EPG website. It shows my current valuation of each company compared to First Call's price target.

[wilmawatts]

Up 4.70% for the week, or 244.4% on an annual basis. Not bad stock picking my friend.

In terms of the Sweet 16 Dan, for capital appreciation long term and taking into consideration risk/reward, for those willing to take a little more risk which is your favorite company?

Newfield? Parsley? Devon? Someone else?

Assume we are going to make an offer in the morning for the most undervalued with the most potential, which one do we target is another way to ask it.

[dan_s]

The Sweet 16 stocks with the most upside to my valuations are AR, DVN, GPOR, NBL, PDCE and SM

You can see my valuation for each company on the Sweet 16 spreadsheet, which was updated on the EPG website this morning. Just download it to Excel.

AR and GPOR are "gassers" and Wall Street won't pay much attention to them until the weather cools in New York.

NBL and PDCE are being held down by the initiatives being pushed in Colorado to ban fracking in most areas. Based on a report that I got from EnerCom, the two petitions to put them on the November ballot do not have enough confirmed signatures and they will be thrown out by mid-September. If they do get on the ballot, it is doubtful they will pass since anyone with a brain in Colorado knows how important the oil & gas industry is to the state's economy. Plus, only a tiny percentage of people are impacted by oil & gas activity in the state. Most of the DJ Basin is farmland in low populated areas.

DVN is a company "in transition". They've raised $3.2 Billion by selling non-core assets and their balance sheet will be in great shape by year-end. They also hold a lot of VERY GOOD leasehold in STACK.

SM is drawing a lot of attention for an acquisition they made in the Permian Basin. Even though SM has a strong track record of getting great well results in the Eagle Ford, Wall Street considers a lot of their Eagle Ford leasehold to be "Tier Two". It is a bit "gassy", but I now consider SM's balanced production mix to be a PLUS. Wall Street is in love with the Permian Basin, so this new Core Area for SM should cause a lot of analysts to take another look at SM. I think they will like what they see.

PE and RSPP both have a ton of upside for us. PE had the most impressive Q2 results and they are building production faster than any company I follow.

[dan_s]

For those of you that have a lower risk tolerance, I recommend adding EOG Resources (EOG) as one of your long-term core holdings. In fact, as Wall Street funds take Merrill Lynch's advice to increase the energy sector to Overweight, EOG is the Sweet 16 company they will fell the most comfortable adding.

Investment Considerations
> EOG has large de-risked acreage positions in North America’s highest profile shale and tight oil plays with strong organic liquids production growth locked in.
> They have a strong balance sheet and strong cash flow to fund their development drilling programs.
> The company has raised the dividend on its common stock to $0.67/share.
> Their world-class positions in the Eagle Ford, Bakken, Barnett Combo and Wolfcamp/Leonard (Permian Basin) make them a prime takeover target for several majors and NOCs.
> EOG controls 100% working interest in most of their best acreage within their liquids resource plays giving them more control over spending and aggressive development. They have some of the best acreage in the Eagle Ford and the Bakken. They have recently discovered a high pressure oil zone in their Permian Basin leasehold that adds another area of significant growth potential.
> With current natural gas production of approximately 1.2 Bcf per day, EOG’s revenues will get a nice revenue boost from the improvement in natural gas prices expected in late 2016.
> EOG owns two sand mines and their own crude-by-rail system giving them an edge on the competition.
> The success reported in the Austin Chalk and Eagle Ford EOG pilot projects have the potential to add another billion boe of recoverable reserves in Texas.

[wilmawatts]

I'll go with Devon.

I had a beer with the Governor of Oklahoma in a meeting in their tower last year in OKC, impressive company.