4 Deeply Undervalued Natural Gas Stocks To Buy Now

| About: Apache Corporation (APA)
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Apache (NYSE:APA) recently announced its first quarter results for this year, which appear quite promising. The company reported record worldwide production of 769,000 barrels of oil equivalent (BOE) per day, a 7% increase from the previous year. This growth can be attributed to the increase in global oil prices.

While the continuing deterioration of North American natural gas prices is a matter of concern, Apache has developed a strong strategy focused on acquisition of potential production units to ensure profitability is not affected. The company reported earnings of $778 million, or $2 per diluted share, for the three month period ending March 31. Given the current scenario, Apache's profits should continue to rise through the second quarter too.

Apache has been playing high on acquisitions to increase its profitability. Earlier this year, Apache acquired Mobil North Sea Ltd. assets for $1.25 billion from the U.S. oil giant Exxon Mobil (NYSE:XOM). Another potentially powerful move is the recent acquisition of Cordillera Energy Partners III, LLC. This deal will allow Apache access to Cordillera's extensive oil reserves. This is good news for investors as the acquisitions would be accretive to Apache's earnings and cash flow in 2012.

If maintaining high moral grounds had something to do with a company's market reputation, Apache would surely benefit from it. The company recently made a generous contribution to replace the tornado warning system for the City of Woodward, Oklahoma, with new equipment that will include battery backup and redundant controls.

The City of Woodward is an important hub for Apache's operations in western Oklahoma, and this donation is one way for Apache to help the community rebuild, rebound and be prepared for future tornadoes. While such social actions might not directly impact the stock value of a company, it is still a good way to establish faith and confidence amongst investors and shareholders.

Apache recently announced yet another deal with Chubu Electric Power (OTC:CHUEF). As a part of its agreement with Chubu, the company will provide 19 million cubic feet of natural gas per day from its stake in the Chevron-operated Wheatstone Project in Western Australia. With Apache's current ownership interest at 13%, this move will definitely prove to be an important milestone for the Wheatstone project, further increasing profit margins and shareholder wealth.

Apache is also actively developing and investing in oil and gas resources in Australia. The company has a large number of projects in both exploration and development stage, in the Australian region. Earlier this year, Apache opened a natural gas processing unit in Western Australia called Devil Creek. I see this as a strategy to combat competition by ensuring widespread production and reach. It is estimated that this new unit will be producing approximately 5,200 barrels of natural gas per day from a well drilled in the Western Egyptian desert.

When gas prices settle down, Apache will enjoy a competitive advantage in continuing revenue from gas. It is also predicted that oil prices will be overpriced for the near future, at least until 2015, making it more difficult for oil companies to survive. This means only a diverse portfolio and multidimensional earnings can help sustain growth and profitability. This is perhaps why Apache is an exciting prospect for investment.

The Competitors

However, all is not rosy at Apache's end, as its competitors take giant leaps in the oil and natural gas market. Chevron's (NYSE:CVX) earnings for the first period of 2012 reached $6.5 billion, while production profits increased by 3.2%. This has obviously resulted in a substantial dividend increase for Chevron shareholders. According to CEO John Watson, "New production is coming on as planned, and we continue to see strong customer interest in our Australia LNG projects that underpin our future growth."

Atlas Resource Partners (NYSE:ARP) recently announced the $190 million purchase of 277 bcfe of natural gas reserves in the Texas Barrett shale from Carrizo Oil and Gas (NASDAQ:CRZO). Earlier last month, the company had entered into an agreement with subsidiaries of Equal Energy (NYSE:EQU) to acquire 50% ownership in Equal's 14,500 net undeveloped acres in the core of the oil and liquids rich Mississippi Lime play in northwestern Oklahoma. Mississippi Lime is one of the highest returning U.S. oil and gas plays, making Atlas Resource Partners a direct competitor for Apache.

Anadarko Petroleum (NYSE:APC) also announced its first-quarter earnings earlier this week, posting a strong growth in profits and cash flow from operational activities. Deteriorating oil and natural gas prices in the U.S. forced Anadarko to focus on its liquid portfolio. Since then, the company has been focusing on liquid rich plays such as Wattenburg and Eagleford to support its onshore liquids production.

However, Anadarko had a bumpy start to 2012, with its drilling operations in the Centerra development in East Loveland, Texas, put on hold. Since March, the company has started producing around 45,000 b/d from its three wells in the Caesar/Tonga. I feel the impact of these productions will be clearly reflected in future quarters. With over 50% increase in profit margins compared to the previous year, Anadarko is surely a competitor to watch out for.

Final Outlook

Apache's current strategy is excellent in terms of fueling profits and growth, but where does it go from here?

In my opinion, the natural gas industry is severely undervalued. The coming years will witness an increase in gas prices as the global demand for natural gas continues to rise. Apache will reap the benefits with its massive natural gas production capabilities, leaving many of its rivals behind.

With its present strategy of acquisitions and measured risk-taking, the company will continue to make steady profits and grow at a considerable pace, despite challenging market conditions.

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