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Energy Producer Apache Trading At A Sizable Discount To Its Peers

|Includes:Apache Corporation (APA)

Tim Biggam, TradingBlock (April 17, 2012, 3:40 pm CDT)

Symbol Analyst Target Price Target Date
APA 105.00 July 20, 2012

Apache Corporation (ticker: APA) is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. It has exploration and production interests worldwide. The company sells its natural gas to local distribution companies, utilities, end-users, integrated oil companies, and supply aggregators and marketers.

Apache has finally found support, bouncing off the 92 level. The stock has languished this year, with a virtually flat return compared to the 10% returns generally for equities. The recent merger with Cordillera increases reserves dramatically. From a valuation standpoint, the stock is trading at only 8-times earnings, which is the cheapest since the height of the financial crisis. On a forward basis, the stock carries only a 6.7 multiple, a big discount to its peer group.

Technically, the stock has solid support and is coming off a deeply oversold condition, with the 14-day RSI trading near 20, and now breaking back up to the mid-30 level. While the price of natural gas has been a big drag on the performance of APA, we feel the valuations at these levels are compelling.

Given even a firming, let alone a rise, in natural gas pricing, I would look for APA to move to 105 by July expiration.

Play of the Day

Based on Apache's (ticker: APA) current market price of $94.55 and using a target price of $105.00, a target date of July 20, 2012 and $10,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Sell Jul Iron Condor +223% 77%
Sell Jul Put Spread +127% 48%
Buy Jul Call +87% 40%
Buy Stock +11% 56%

* Click link to access TradeBuilder details on Must have Instant or Actual account. Subject to change due to changing market conditions. Click here to view risks regarding selling stock short.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services. He currently does not hold any positions in SBUX.

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

Stocks: APA