Apache (NYSE:APA) is a energy stock in my portfolio that I have not written about in quite some time. These cheap shares have not done much in quite awhile. The stock is up some 2% in midday trading today, and positive catalysts are starting to mount. Given its valuation, I think this growing energy company has good stock price appreciation potential in the second quarter and little downside risk.
Here are several recent positive catalysts:
- A director bought 10,000 shares at just under $75 a share. This was the third insider purchase over the last five weeks. These are the first insider purchases since early November.
- The first well of the 270 that Apache plans to drill in Egypt this year was successful earlier in the month.
- Natural gas prices have doubled off the lows of approximately a year ago. Over half of Apache's production is natural gas, and this certainly helps its North American revenues (just over half of the company's production comes from North America) from natural gas.
- The stock is starting to bounce off a two-year technical support level (see chart).
Click to enlarge image.
Apache is the fourth-largest independent exploration and production company in the United States.
Here are four reasons why APA is undervalued at $77 a share:
- The mean price target of the 26 analysts covering the stock is north of $100 a share. The gap of $23 over its current price is one of the biggest among the major U.S. energy producers. Standard & Poor's has its strongest rating "Strong Buy" and a $116 price target on the shares.
- The company is selling at the bottom of its five-year valuation range based on P/E, P/B, P/S, and P/CF.
- Activists having forced significant changes and unlocked shareholder value at Hess (NYSE:HES) and Chesapeake Energy (NYSE:CHK), may target Apache or Occidental Petroleum (NYSE:OXY) next.
- The company has an A-rated balance sheet, pays a 1.1% dividend, has a cheap five-year projected PEG (1.23), and sells for slightly less than book value.
Disclosure: I am long APA, HES, OXY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.