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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (50498)	1/4/2013 9:54:01 AM
From: Jurgis Bekepuris	1 Recommendation Respond to of 78476

APA - I know that you guys value oil/gas cos based on reserves and that's possibly the right way to value them. However, I don't. And looking at earnings/FCF, it is expensive. Even taking the peak earnings in 2011 - 4.5B, it is trading at 10% E/EV. If I take average 3-5 year results, the multiplies are even worse. This could be OK if we were looking at a small E&P trying to grow, etc. But APA is a large company, so I compare it to something like TOT or CVX that are trading at lower peak and current multiples and have much smoother results - probably due to their downstream ops though. But yeah, APA is cheapish at P/book and presumably has pretty good reserve replacement. I don't like it compared to my current holdings though. Overall, however, I think that energy sector right now is a gamble. Unlike the "peak-oil" years and the recovery from 2008-2009 drop into abyss, current situation is tough to macro analyze. There can be oil/gas glut if shale production goes well and there could be shortage if it doesn't. So without clear macro direction, the per company execution matters a lot and it's much tougher to evaluate. You consider APA execution to be good. I am not so sure. Overall, I am not looking to invest much more into energy sector because of the unclear macro issues. I may only add to special situations (small/cheap E&Ps) or if prices drop a lot on macro/market downdraft. Disclosure: I have positions in CVX, TOT, etc., but not in APA.