Apache Corporation (NYSE:APA) has underperformed the general market, as it has gained only 6.11% since the beginning of the year while the S&P 500 has increased by 13.24% during the same period. However, Apache seems to be a favorite stock of many famous investors including Martin Whitman, T Boone Pickens, Brian Rogers and Wallace Weitz. While Brian Rogers holds around 5 million shares in the company, T Boone Pickens and Martin Whitman own nearly 125,000 and 750,000 shares of Apache, respectively. Is Apache a good buy now? Let’s take a closer look.
Four reasons to be bullish on Apache
Indeed, there are four main reasons to like Apache Corporation (NYSE:APA). The first is about its potential reserves. It has the oil & gas operation in several countries such as the U.S., Canada, the U.K. North Sea and Egypt. In 2012, the company reported that it had around 2.85 billion BOE in total proved reserves, with around 28% of the total proved reserves in the U.S. Permian Basin. When mentioning the Permian Basin, people would think of Apache as the most active company with around 38 operating rigs in that area. Its proved reserves, including the Permian/Central Resources reaches as much as 11.7 billion BOE.
Second, Apache has quite a strong balance sheet. As of March, it had $32 billion in equity but only $11.5 billion in long-term debt. Its cash position came in at $248 million. Investment guru Martin Whitman likes the fact that the majority of its debt is low coupon with an A credit rating. Its interest coverage is quite high at 10.6 with a debt/equity ratio of only 60%.
Third, its shareholders will get a decent yield from its potential cash return program including dividends and share repurchases. At the current trading price, Apache Corporation (NYSE:APA) offers its investors dividends with a yield at 1% with the very conservative payout ratio at only 15%. Investors might get excited by the company’s plan to divest $4 billion in assets by year-end 2013. The initial $2 billion will be used to reduce the company’s debt while the remaining $2 billion will be returned to investors via a 30 million-share repurchase program.
Last but not least, it is valued quite cheaply on the market. Apache is trading at $83.70 per share with the total market cap of $32.8 billion. The market values Apache at only 3.8 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization). The forward earnings valuation comes in at quite a low level as well at only 9.1.