Comparing Anadarko Petroleum to key natural gas rivals
As mentioned, Anadarko Petroleum is the third largest US natural gas producer. So why choose this company over the other two top producers? Let’s take a look at each so see why Anadarko Petroleum is the best choice.
In first place is Exxon Mobil Corporation (NYSE:XOM). In 2012, the company produced 3,822 MMcf per day, more than 20% above its closest competitor.
But ExxonMobil is much less appealing when you consider the fact that the company is actually decreasing its production levels. In the fourth quarter of 2012, Exxon Mobil Corporation (NYSE:XOM) saw a 6.4% decline in production, while Anadarko Petroleum actually increased production by 8.3% year-over-year.
Exxon Mobil Corporation (NYSE:XOM) is a stable “cash cow” business with reliable profits and a 2.8% dividend yield. But analysts are only expecting earnings to grow by 2.6% over the next year.
With a mature business like ExxonMobil, the best investors can hope for is a steady, reliable dividend and a meager rate of return. Considering the strong growth opportunities in the natural gas market, I would much rather own a company that has a high growth profile.
The second largest US natural gas producer is Chesapeake Energy Corporation (NYSE:CHK). To be sure, Chesapeake Energy Corporation (NYSE:CHK) is a strong competitor with some very high-quality properties. But it is not a company I would want to own.
Chesapeake Energy is mired in controversy after the company granted then-CEO Aubrey McClendon personal stakes in company wells. Both the SEC and the US Department of Justice are investigating the company on separate matters.
Fundamentally, the company looks fairly attractive, with earnings expected to grow nearly 40% between 2013 and 2014. Chesapeake Energy Corporation (NYSE:CHK) also offers a 1.6% dividend yield.
But ethical issues can have a way of resurfacing and diluting shareholder value. So given the choice between two strong natural gas producers, I prefer the one with solid growth and a less tarnished reputation.
The time to act is now
Anadarko Petroleum Corporation (NYSE:APC) has a tremendous opportunity to grow profits over the next several years as the natural gas market stabilizes.
The company has a strong base of producing assets with the capacity to increase production under the right circumstances. Management has shown the discipline to keep from producing peak natural gas with prices much lower, while still maintaining the ability to ramp production when prices increase.
I’m impressed with the overall growth opportunity here and believe that investors would be well served to steadily accumulate shares of Anadarko Petroleum Corporation (NYSE:APC) over the next year.
The article Three Reasons to Own Anadarko Petroleum originally appeared on Fool.com and is written by Zachary Scheidt.
Zachary Scheidt has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
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