Apache Is Getting Too Cheap To Ignore

| About: Apache Corporation (APA)

The post-election pull back has knocked some 3% to 4% off the major indexes. Although I believe the market is likely to remain volatile through at least the end of the year, I am starting to nibble a bit here. One sector I believe has been slightly oversold is energy. One of the cheaper major players in the space is Apache (NYSE:APA) which looks like it is offering a good entry point to longer term investors.

Apache Corporation is a large independent energy company that produces natural gas, natural gas liquids and oil from its properties all over the world.

7 reasons APA is undervalued at under $79 a share:

  1. APA is cheap at under 8x forward earnings, a discount to its five year average (10.5).
  2. A couple of insiders bought over $400K worth of new shares in early November. This was the first insider buying activity in 2012.
  3. The stock is selling at the bottom of its five year valuation range based on P/E, P/B, P/S and P/CF.
  4. The company has more than doubled its operating cash flow (OCF) over the past three years. APA is selling at under 4 times OCF which is incredibly cheap.
  5. Apache through deployment of its capital budget and strategic acquisitions is moving production to more of an United States based focus. This effort should pay dividends over the coming year and revenues are expected to increase some 8% in 2013 after being flat in 2012. North America now represents 55% of total production, up from 46% in 2010.
  6. Production is now running at around 53% geared towards liquids. This should increase over the coming years and the company should also benefit from rising natural gas prices which are up some 60% domestically from their lows earlier in the year.
  7. Apache is selling significantly under the median analysts' price target of $110 a share by the 25 analysts that cover the stock. S&P has its highest rating "Strong Buy" on the stock with a $116 price target on the shares.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in APA over the next 72 hours. 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.