Apache Corporation (APA) — This large independent oil and natural gas exploration and production company is a major player in the Permian Basin. A continued decline in oil prices is certainly a risk, and geopolitical risk in Egypt could result in a high degree of volatility. However, Apache’s global diversification should help offset this.
In early November, an unconfirmed report by Bloomberg said Apache was the subject of an unsolicited takeover offer, which it allegedly turned down. But S&P Capital IQ Equity Research said Apache is an attractive acquisition target since it is one of the few oil and gas companies likely to post positive free cash flows in 2016.
Its analysts rate APA stock a “buy” with a price target of $56, which is 4.6 times estimated 2016 cash flow. They note this is below the peer average but above Apache’s five-year historical average, saying this premium is warranted due to recent divestitures, which have resulted in a streamlined asset base.
APA stock broke to an intermediate uptrend following the late-September low under $36, rallying to a recovery high above $52 in November.
The stock is currently recovering from profit-taking. Support is near $44 and resistance is at the 50-day moving average at $47.10. A double buy signal from my internal indicator, the Collins-Bollinger Reversal (CBR), a buy signal from MACD and better participation from buyers add to the bullish technical picture.
Buy APA stock at $45 with a trading target of $65 in four months for a potential gain of more than 40%. The company also pays an annual dividend of $1 per share for a forward yield of 2.2%.
