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In the learning to fish series, investors are provided with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of dividend investing.

The suggested guidelines can be accessed here: "Our suggested guidelines when searching for new investment ideas." These are not absolute rules, they are just suggestions, and there are always exceptions to the rule. The goal is to try to satisfy as many of the guidelines as possible.

Reasons to be bullish on Apache Corporation:

  • A five year sales growth rate of 12%
  • Sales vs 1 year ago increased by 37%
  • A five year capital spending growth rate of 12%
  • Net income increased from -$285 million in 2009 to $4.5 billion in 2011
  • Sales increased from $8.6 billion in 2009 to $16.8 billion in 2011
  • Cash flow per share rose from $21.05 in 2009 to $23.26 in 2011
  • It has strong institutional support. The percentage held by institutions is 85%.
  • Profit margins of 24.5%
  • A very strong retention rate of 94%
  • A projected 3-5 year EPS growth rate of 6.41%
  • A five-year ROE average of 17.99%
  • A very good interest coverage ratio of 19.10%
  • A free cash flow yield of 9.64%
  • $100K invested for 10 years would have grown to $319K

Click to enlarge

Suggested strategy

Crude oil is still consolidating, and Apache Corp is still in a downtrend. There is a pretty good chance it could test its Oct 2011 lows. Consider waiting for a test of the 73.0-75.00 ranges before committing new money into this play. Alternatively, you could sell puts with strikes in the 70-75 ranges when it dips down to 75.00.

Company: Apache Corp (NYSE:APA)

Brief Overview

  1. Levered free cash flow= $1.82 billion
  1. Percentage Held by Insiders = 0.26
  2. Long term debt to equity ratio = 0.73
  3. Profit Margin = 24.5%
  4. Operating Margin = 49.3%
  5. Quarterly Revenue Growth = 15.5%
  6. Quarterly Earnings Growth = -29.7%
  7. Operating Cash Flow = 103M
  8. Beta = 1.69
  9. Percentage Held by Institutions = 85.4%
  10. Short Percentage of Float = 1.3%
  11. Relative Strength 52 weeks = 35
  12. Cash Flow 5 -year Average = 20.74

Growth

  1. Net Income ($mil) 12/2011 = 4584
  2. Net Income ($mil) 12/2010 = 3032
  3. Net Income ($mil) 12/2009 = -285
  4. EBITDA ($mil) 12/2011 = 12297
  5. EBITDA ($mil) 12/2010 = 8289
  6. EBITDA ($mil) 12/2009 = 5539
  7. Cash Flow ($/share) 12/2011 = 23.36
  8. Cash Flow ($/share) 12/2010 = 17.22
  9. Cash Flow ($/share) 12/2009 = 21.05
  10. Sales ($mil) 12/2011 = 16888
  11. Sales ($mil) 12/2010 = 12092
  12. Sales ($mil) 12/2009 = 8615
  13. Annual EPS before NRI 12/2007 = 8.46
  14. Annual EPS before NRI 12/2008 = 11.61
  15. Annual EPS before NRI 12/2009 = 5.52
  16. Annual EPS before NRI 12/2010 = 8.92
  17. Annual EPS before NRI 12/2011 = 11.93

Dividend history

  1. Dividend Yield = 0.8
  2. Dividend Yield 5 Year Average = 0.60
  3. 5 year dividend growth rate = 1.41

Dividend sustainability

  1. Payout Ratio = 0.06
  2. Payout Ratio 5 Year Average = 0.07

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 6.41
  2. ROE 5 Year Average = 17.99
  3. Return on Investment = 13.83
  4. Debt/Total Cap 5 Year Average = 21.99
  5. Current Ratio = 1.10
  6. Current Ratio 5 Year Average = 1.41
  7. Quick Ratio = 0.7
  8. Cash Ratio = 0.22
  9. Interest Coverage = 19.10

Interesting companies

For investors looking for other ideas detailed data has been provided on two additional companies. Our latest article could also provide some food for thought: Philip Morris: 7% Extra In Addition To The Dividend.

Company: Kodiak Oil Gas (NYSE:KOG)

Levered Free Cash Flow = - $1.07B

Brief Overview

  1. Percentage Held by Insiders = 4.7
  2. Long term debt to equity ratio = 0.73
  3. Profit Margin = 7%
  4. Operating Margin = 18.5%
  5. Quarterly Revenue Growth = 499%
  6. Quarterly Earnings Growth = N/A
  7. Operating Cash Flow = 103M
  8. Beta = 2.48
  9. Percentage Held by Institutions = 65.8
  10. Short Percentage of Float = 4.3%

Growth

  1. Net Income ($mil) 12/2011 = 4
  2. Net Income ($mil) 12/2010 = -2
  3. Net Income ($mil) 12/2009 = -3
  4. EBITDA ($mil) 12/2011 = 51
  5. EBITDA ($mil) 12/2010 = 6
  6. EBITDA ($mil) 12/2009 = 1
  7. Cash Flow ($/share) 12/2011 = 0.32
  8. Cash Flow ($/share) 12/2010 = 0.07
  9. Cash Flow ($/share) 12/2009 = 0.01
  10. Sales ($mil) 12/2011 = 120
  11. Sales ($mil) 12/2010 = 25
  12. Sales ($mil) 12/2009 = 11
  13. Annual EPS before NRI 12/2007 = -0.05
  14. Annual EPS before NRI 12/2008 = -0.1
  15. Annual EPS before NRI 12/2009 = -0.02
  16. Annual EPS before NRI 12/2010 = 0.03
  17. Annual EPS before NRI 12/2011 = 0.17

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 50
  2. ROE 5 Year Average = -7.06
  3. Current Ratio = 1.76
  4. Current Ratio 5 Year Average = 3.93
  5. Quick Ratio = 1.5
  6. Interest coverage = 1.60

Company: Chevron Corp (NYSE:CVX)

Growth

  1. Net Income ($mil) 12/2011 = 26895
  2. Net Income ($mil) 12/2010 = 19024
  3. Net Income ($mil) 12/2009 = 10483
  4. EBITDA ($mil) 12/2011 = 60545
  5. EBITDA ($mil) 12/2010 = 45168
  6. EBITDA ($mil) 12/2009 = 30666
  7. Cash Flow ($/share) 12/2011 = 19.99
  8. Cash Flow ($/share) 12/2010 = 15.91
  9. Cash Flow ($/share) 12/2009 = 10.86
  10. Sales ($mil) 12/2011 = 253706
  11. Sales ($mil) 12/2010 = 204928
  12. Sales ($mil) 12/2009 = 171636
  13. Annual EPS before NRI 12/2007 = 8.63
  14. Annual EPS before NRI 12/2008 = 11.38
  15. Annual EPS before NRI 12/2009 = 4.84
  16. Annual EPS before NRI 12/2010 = 9.45
  17. Annual EPS before NRI 12/2011 = 13.44

Dividend history

  1. Dividend Yield = 3.6
  2. Dividend Yield 5 Year Average = 3.10
  3. Dividend 5 year Growth = 7.7

Dividend sustainability

  1. Payout Ratio = 0.23
  2. Payout Ratio 5 Year Average = 0.31

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 2.15
  2. 5 Year History EPS Growth = 6.98
  3. ROE 5 Year Average = 21.14
  4. Current Ratio = 1.60
  5. Current Ratio 5 Year Average = 1.42
  6. Quick Ratio = 1.2
  7. Retention rate = 77%

Conclusion

The markets are still in a corrective phase so investors can use pullbacks to deploy money into new positions. The markets are projected to generally trend upwards until about August, at which point they could potentially put in another multi-month top. Investors looking for other ideas might find this article to be of interest: Corning Inc: 3-1 Leverage With No Out Of Pocket Cost.

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Earnings and growth estimates sourced from dailyfianance.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: It is imperative that you do your due diligence and then determine if the above play meets with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: Apache: Is The Time To Go Long Close At Hand?