Anadarko Petroleum (APC)

A friend asked for my take on APC. He is contemplating a long-term share accumulation program through a DRIP.

Judging by the long-term chart, Anadarko certainly looks like a good place to put some money to work. APC’s price action has formed a perfectly symmetrical upward trend channel for 20 years, and even after the recent sharp decline, the price has only regressed to the mean; it is almost exactly in the center of that trend channel.

During this same time frame, APC has strongly outperformed the S&P500, of which it is a member, and it has also significantly outpaced its blue chip competitor XOM. Yet APC’s volatility is about the same as the S&P500 (beta 1.01).

Despite the niggardly current yield of .85%, APC had been raising their dividends geometrically. On a split-adjusted basis the dividend has increased 360% since 2000. (There were 2-for-1 stock splits in July 1998 and again in May 2006.)

APC has become one of the biggest independent oil and gas exploration and production companies in North America. This year, the firm acquired Kerr-McGee and Western Gas at a cost of $23.3 billion. These deals enhance Anadarko’s position in the Gulf and the Rockies. APC also owns significant mineral rights in North America, and has substantial foreign operations in Canada, Algeria, Venezuela, Qatar and other countries. Quite a bit of good fundamental information is readily available on the internet.

The picture on the short-term chart is not quite so rosy. APC stock has declined 26% from the price peak last May and it made a new 52-week low last week. The short, intermediate and long term trends are all down, as measured by the 10, 50, and 200 day moving averages. The declining trend of on balance volume shows that large investors have been selling heavily. On a more positive note, the new low last week was not confirmed by a new low on the RSI plot, nor by a new low on the on balance volume chart, so a rally may be imminent.

I believe APC offers significant potential as a long-term investment. If my portfolio were not already overweight in oil I would be looking to buy some myself. Share accumulation through regular investments in a DRIP looks like an excellent strategy. The recent decline appears to be offering an attractive entry price. Even though I expect a further price decline because of year-end tax loss selling, I would commence a DRIP investment program on the first show of technical strength, for example, as soon as the 10 day moving average crosses above the 50.

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2 Responses to “Anadarko Petroleum (APC)”

  1. umagumm Says:

    Other advantages of APC include the fact that some 85% of their reserves are locked up here in North America. The have some business in Algeria, who has been tightening the screws on the recently, but their overall model seems far preferable to one that depends on the likes of Venezuela, Nigeria, and Russia.

    Another nice thing about an APC DRIP is that the company offers the shares with no fees (unlike CVX which is a terrible offender in this regard) and at a discount of 5% (unlike XOM which offers shares with no fees, but no discount.

    APC is the rare oil producer that is in debt right now. It acquired two companies with a total value equal to its own. APC received apparantly decent financing for this, but has been slow to divest itself of extra properties that it has previously indicated that it would sell. Something amiss? Did APC overpay or overextend itself? Time will tell. If oil stays over $50 for awhile, that will probably solve most of there problems.

    I like the American-focus of this company and it feels like it could be a 10-bagger. But I agree that it would be nice to see a little more strength.

  2. Alligator Investor Says:

    Unfortunately, APC does have some operations in Venezuela, although I’m not sure how extensive they are. If you are contemplating an investment in APC, you might want to check this out by googling anadarko + venezuela.

    The Venezuela problem could have been part of APC’s motivation for paying such a high price for their recent acquisitions of domestic reserves. Taking on debt for this purpose amounts to a highly leveraged bet on the price of oil. As you say, time will tell whether or not they were right! APC has always had the vibe of its wildcat operator origin.

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