William Montgomery, a member of Apache Corporation (NYSE:APA)’s Board of Directors, purchased 2,000 shares of the company’s stock on March 5th at an average price of $73.11 per share. He now owns a little over 12,000 shares directly and so in percentage terms this is a significant increase in his holdings. Studies show that insider purchases are bullish signals and we’d explain this by pointing out that the principles of diversification should guide insiders against purchasing shares (and therefore increasing their company-specific risk) unless they are confident in the stock price. When multiple insiders are buying within a short period of time, as is the case with Apache, this turns out to increase the chances of outperformance (learn more about consensus insider purchases).
Apache’s oil revenues grew by 4% last year compared to 2011 (for all of 2012, oil was responsible for 78% of the company’s revenue). This was partially offset by falling natural gas sales but Apache was still able to report a small amount of revenue growth overall. However, higher operating costs caused earnings to fall substantially. The stock price has fallen 31% over the last year, partly because the company seems to have increased its natural gas production and therefore run up more expenses while prices sagged.
Analyst expectations are for fairly rapid improvement at Apache. At a market capitalization of $29 billion, the stock is priced at 15 times its trailing earnings but at only 7 times consensus for 2014. This makes it cheaper than many other energy companies if it can hit its earnings targets, but at a premium to many oil majors in terms of its historical results.
13F filings, which we also use to develop investment strategies (for example, the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year), can tell us which funds owned Apache at the end of December 2012. Billionaire Ken Griffin’s Citadel Investment Group increased its holdings of the stock during Q4 to a total of 2.6 million shares (see Griffin’s stock picks). Eagle Capital Management, which is managed by Boykin Curry, was also buying Apache and had 4.6 million shares in its portfolio at the beginning of January.