Apache Corporation (NYSE: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 technical support, bouncing off the 92 level. The stock has languished this year, with a virtually flat return compared to the 10% returns seen in the broader market. The company’s recent merger with Cordillera increases reserves dramatically. From a valuation standpoint, the stock is trading at only eight 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 speaking, the stock has solid support and is coming off a deeply oversold condition, with the 14-day RSI approaching the 20 mark 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.
Based on APA’s closing market price of $94.55 for April 17, 2012, using a target price of $105.00 and a target date of July 20, 2012, option strategies to consider include selling a July iron condor, selling a put spread, buying a call, or using another options strategy that best fits your trading style and risk-return objectives.
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As of this writing, Tim Biggam does not own any shares mentioned here.