Apache Corporation (APA) Is a Clear Buy

First, Egypt relies heavily on international aid. Countries such as the United States, the Netherlands, Great Britain, and Russia all provide aid to the country and all have oil operations in Egypt. Nationalization could seriously jeopardize this aid.

Second, the Egypt National Oil Company lacks the strength and capability to guarantee success for any political entity to take such a risk. Nationalization would be more of a concern once a strong political power had asserted itself over several years.

The most likely negative impact of the political situation in Egypt is the chance that taxes are raised on oil producers. The Egyptian government is strapped for cash. Such a tax hike would have negative implications for Apache going forward as any tax hike will eat at the company’s profits. But even a tax hike seems highly unlikely in the near term until there is some degree of political stability.

Apache is a buy

Any further drop in share price due to news coming out of Egypt presents even more value for potential buyers of Apache. With its improved balance sheet coming from the divestiture of the Gulf of Mexico assets and its refocus on highly profitable onshore North American plays, Apache looks to be much undervalued while trading in the low $80 range.

The article Apache Is a Clear Buy originally appeared on Fool.com and is written by William Alder.

William Alder has no position in any stocks mentioned. The Motley Fool owns shares of Apache. William is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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