According to a filing with the SEC, Brady Parish Jr., Vice President of Investor Relations at Apache Corporation (NYSE:APA), directly acquired about 4,800 shares of the company’s stock on November 5th at an average price of $80.96 per share. We believe that insiders generally avoid investing in their own company, preferring instead to diversify their wealth away from the same economic forces that determine their income, unless they are highly confident in the stock’s future prospects. This is why we believe that studies have found that insider purchases tend to be bullish signs, more so than sales tend to be bullish (learn more about studies on insider trading).
With the $31 billion market cap Apache Corporation being one of the major players in U.S. onshore shale (as well as having offshore and global acreage), we think that it’s worth reviewing to see if investors should imitate this insider purchase. Apache reported a slight decline in revenue in the third quarter compared to the same period last year, though thanks to better H1 numbers sales were flat in the first nine months of the year versus the first nine months of 2011. However, the company’s depreciation expenses have picked up and combined with slightly higher operating expenses outside of depreciation this has pushed earnings down substantially. Earnings per share, with three-quarters of the year in the books, stood at $3.27- which, when annualized, implies a current-year P/E of 18. For a company with Apache’s growth prospects that’s not bad, though of course it is highly exposed to prices of natural gas and oil. It actually trades at only 8 times earnings estimates for 2013.
Boykin Curry IV’s Eagle Capital Management increased its stake in Apache Corporation during the second quarter of the year, with its 2.8 million shares representing a 34% increase from what it had reported at the end of the first quarter of 2012 (find more stocks that Eagle Capital Management was buying). Billionaire oilman T. Boone Pickens’ BP Capital initiated a position in Apache between April and June (see more stock picks from T. Boone Pickens).
We would compare Apache to fellow independent oil and gas companies EOG Resources, Inc. (NYSE:EOG), Devon Energy Corporation (NYSE:DVN), Continental Resources, Inc. (NYSE:CLR), and Anadarko Petroleum Corporation (NYSE:APC). Many of these companies also have a strong position in U.S. shale. There is a fairly wide spread among them in terms of forward earnings multiples: Continental and Anadarko’s forward P/Es are in the 16-17 range, while EOG is priced at 21 times 2013 estimates and Devon is the cheapest at 12x. Apache, then, is priced about in line with its peers. Of the four peers, the only one whose business has been prospering recently is Continental, whose exposure to the Bakken Shale has been sending both its revenue and earnings up; EOG and Devon, in their most recent quarterly reports, announced that earnings had fallen by at least 30% versus a year earlier. With EOG also being the highest multiple stock, we’d avoid that one; with Continental seemingly prospering thus far, it could be worth studying more closely. Devon is harder to judge- its revenue plummeted as well as its earnings, yet it trades at a discount on a forward earnings basis and that 2013 earnings number is in fact down from the company’s performance in the last four quarters. Anadarko- which edges EOG to have the largest market cap of these stocks- could also be worth taking a closer look at.
We’d hold off on Apache for now. If the industry is of interest, that stock does have this insider purchase in its corner but its business has not been performing well recently and perhaps one of its peers would serve as a good alternative.