Sweet 16 Update - October 15
Posted: Sat Oct 15, 2016 1:14 pm
It has been two weeks since my last Sweet 16 Update because I was in Iceland last weekend and did not get home until late Tuesday night.
The Sweet 16 is up 1.3% since October 1. It is up 49.31% year-to-date, compared to the S&P 500 Index that is now up just 4.36%.
All 16 companies are up YTD. I have been publishing a Sweet 16 since 2001 and only one year prior to this year have all 16 companies finished the year up.
Leading the pack are:
CLR up 125.33% < grossly oversold late in 2015
SM up 97.86% < Congrats to those of you that listened to me on this one when it was not doing so well early in the year.
PE up 95.39%
RSPP up 73.02%
In the near-term, I believe the three "gassers" (AR, GPOR and RRC) have the most upside. They are also trading at rather large discounts to my valuations and the Wall Street Gang is just beginning to figure out how tight the U.S. gas market is going to be this winter. BTW the almost summer like heat across Texas and the South this coming week will keep gas demand for power generation much higher than normal for this time of year. Joe Bastardi said months ago that we'd have an "endless summer" in the eastern U.S. this year, but it looks now like the weather will flip to a colder November with snow in parts of New England on Thanksgiving.
All of the Sweet 16 will report much better results in Q3 than they did in Q2. The best news is that those very confusing non-cash impairment charges should now be behind us. There will still be some big swings in mark-to-mark valuations of hedges. Just ignore them since they are non-cash items and one of the stupidest GAAP accounting rules. Always focus on cash flow from operations. "Cash pays the bills, not reported earnings".
If oil & gas prices are higher at year-end, the companies will report big increases in proven reserves since higher prices extend the economic lives of their properties. Higher proven reserves causes lower DD&A rates, which (when combined with reduced asset book bases) causes lower DD&A expense and higher reported earnings. Therefore, quarterly comparisons to the prior year should be outstanding in 2017.
AR and RRC will be the first two companies to report Q3 results on October 25 & 26. These are both Marcellus/Utica companies, so pay attention to what they say about that area's market for gas and NGLs.
I will update my forecast/valuation models as soon as I can after each company releases Q3 results.
One last thing, I was going to add EQT to the Sweet 16 in the newsletter that comes out on Tuesday but I've not had time to look at it closely. It is a high quality "gasser" and definitely looks good. My forecast model for it can be found on the EPG website under the Small-Cap tab. EQT would replace NBL, even though I think NBL is grossly undervalued by the market.
XEC and PE are getting close to my current valuations, but these are such incredible companies I don't want to remove them. They both deserve to trade at high multiples.
The Sweet 16 Spreadsheet has been posted to the EPG website. It shows my current valuation for each stock compared to First Call's price target.
The Sweet 16 is up 1.3% since October 1. It is up 49.31% year-to-date, compared to the S&P 500 Index that is now up just 4.36%.
All 16 companies are up YTD. I have been publishing a Sweet 16 since 2001 and only one year prior to this year have all 16 companies finished the year up.
Leading the pack are:
CLR up 125.33% < grossly oversold late in 2015
SM up 97.86% < Congrats to those of you that listened to me on this one when it was not doing so well early in the year.
PE up 95.39%
RSPP up 73.02%
In the near-term, I believe the three "gassers" (AR, GPOR and RRC) have the most upside. They are also trading at rather large discounts to my valuations and the Wall Street Gang is just beginning to figure out how tight the U.S. gas market is going to be this winter. BTW the almost summer like heat across Texas and the South this coming week will keep gas demand for power generation much higher than normal for this time of year. Joe Bastardi said months ago that we'd have an "endless summer" in the eastern U.S. this year, but it looks now like the weather will flip to a colder November with snow in parts of New England on Thanksgiving.
All of the Sweet 16 will report much better results in Q3 than they did in Q2. The best news is that those very confusing non-cash impairment charges should now be behind us. There will still be some big swings in mark-to-mark valuations of hedges. Just ignore them since they are non-cash items and one of the stupidest GAAP accounting rules. Always focus on cash flow from operations. "Cash pays the bills, not reported earnings".
If oil & gas prices are higher at year-end, the companies will report big increases in proven reserves since higher prices extend the economic lives of their properties. Higher proven reserves causes lower DD&A rates, which (when combined with reduced asset book bases) causes lower DD&A expense and higher reported earnings. Therefore, quarterly comparisons to the prior year should be outstanding in 2017.
AR and RRC will be the first two companies to report Q3 results on October 25 & 26. These are both Marcellus/Utica companies, so pay attention to what they say about that area's market for gas and NGLs.
I will update my forecast/valuation models as soon as I can after each company releases Q3 results.
One last thing, I was going to add EQT to the Sweet 16 in the newsletter that comes out on Tuesday but I've not had time to look at it closely. It is a high quality "gasser" and definitely looks good. My forecast model for it can be found on the EPG website under the Small-Cap tab. EQT would replace NBL, even though I think NBL is grossly undervalued by the market.
XEC and PE are getting close to my current valuations, but these are such incredible companies I don't want to remove them. They both deserve to trade at high multiples.
The Sweet 16 Spreadsheet has been posted to the EPG website. It shows my current valuation for each stock compared to First Call's price target.