Profiting from Apache Corp.: Enjoy the Ride, Utilize Trailing Stops

Back on June 26, 2006, I recommended that my Taipan readers invest in a little-known domestic oil stock. Back then it traded for $63.76.

Nine months after Hurricane Katrina had devastated New Orleans and four months after the tealeaf readers of the National Weather Service had predicted a cascade of deadly hurricanes to turn Texas and Louisiana into swampland, Apache Corporation (APA) had just done something that seemed like pure foolishness to the talking heads in the media: Bought out other energy companies’ natural gas fields in the Gulf of Mexico. Natural gas was at a low, and oil wasn’t going anywherere. Deutsche Bank had identified an upside of $66 for the stock.

Now, I no longer write Taipan. But I still like Apache because of its impeccable drilling record and the fact that it is a domestic U.S. oil producer, with no exposure to Middle Eastern sabotage or Nigerian labor and ownership disputes. And one of my pet peeves still are forecasters who use every second of their fifteen minutes of fame to predict pandemonium. (I’ve frequently made fun of them in my weekly video program, TFN’s Amberger’s Smackdown.)

Over the months, I repeated my recommendation, both in Taipan and in our TFN online video shows. My readers actually had multiple opportunities to buy APA stock at below $60.

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Profiting from Oil Stocks: Apache (APA:NYSE) is on a roll!The company’s stock price closed at $116.22 on Friday, after hitting a record high of $119.48 in late February — a gain of up to 89% for those who took my initial advice… a cool double for those who ignored me and bought below $60.

Plus, two weeks ago, the company’s declared a special cash dividend of 10 cents a share, payable March 18 to shareholders of record on Feb. 26 — on top of its regular dividend of 15 cents a share on May 22 to shareholders of record on April 22.

Where to go from here?

With oil prices over $100, it would seem that there is no end to the money than can be made on oil company stock.

But a word of warning. Supply and demand, India and China are sufficient to explain oil prices of up to $80 a barrel. The recent upward surge has the stench of fear attached: With stock markets in the dumps and real estate collapsing around their ears, private investors and institutions are shoveling money into what they perceive to be the last reliable profit generator: Commodities and gold.

Now, a bubble market is a perfect environment to make money. But only if you remain aware that bubbles always pop at some point. Stay in APA:NYSE for the time being to ride out this fear-fueled bull market… but quietly move trailing stops into place that will get you out if your profits are down 20%.

Disclosure: None

Comments

[theoilyboy]

The story with Apache is more global than most analyst think. Apache has been pegged as a one trick GOM pony when in reality they have recently made finds in other places and continue to develop global reserves. Egypt and Argentina are doing well, and Australia in particular has made some significant finds.

The problem with Apache these past two years was that it historically has been a deal making company and very good at it. This comes from being founded in the 50's by bankers looking for tax shelters and finding there was actual money in the oil business. They would take sub-economic properties from the big guys (Shell and especially BP) and then monetize the reserves better. With oil prices high and valuations very high, they couldn't make these kinds of deals anymore and wisely had the financial discipline to not overpay. In fact, they sold some properties at great prices (China unit sold to Roc Oil). They were even castigated for not making deals by these same analysts.

With nat gas prices high, the stock is moving along with its peers, but I would argue its peer group is not really just the GOM guys and this growth in stock is overdue and justified.

Thanks for the article.