5. APA Corporation (NASDAQ:APA)
Number of Hedge Fund Holders: 45
APA Corporation (NASDAQ:APA) is an American holding company. Its subsidiaries explore for and produce oil and natural gas in the US, Egypt, and the UK. The stock has been consistently experiencing a downward trend, falling by nearly 40% from its high in mid-2022. In the first quarter of 2024, the company reported production of 389,000 barrels of oil equivalent per day, which excludes its Egypt production. This showed a 6% decline from the same period last year. Meridian Funds highlighted some reasons for the company’s decline in its Q4 2023 investor letter.
“APA Corporation (NASDAQ:APA) is a global energy exploration and production company with operations in Egypt, the U.K., the North Sea, the U.S. Permian Basin, and Suriname, where it has made a significant oil discovery and sizeable additional discoveries are expected. We believe APA’s core global production profile is underappreciated and that the business is viewed as defensive, given its low cost to maintain and grow production. APA’s Suriname project, which is moving closer to development with partner TotalEnergies, is expected to provide differentiated low-cost production growth in two to three years as TotalEnergies is carrying the bulk of the development cost. This mix has allowed APA to otherwise aggressively allocate capital to pay down debt and increasingly focus on buying back stock as opposed to financing capital-intensive production growth. During the quarter, the stock declined as the mix of falling oil and gas prices and an announcement from TotalEnergies timed Suriname’s potential first production at the far end of estimates. We increased our holding in APA in the fourth quarter since the timing delay would not change the value we ascribe to the Suriname production. Adding to our confidence was news of the potentially increased size and amount of the first production from that region which, in our view, would more than offset the negative effect of the delay.”
We agree with the firm. The company’s debt-to-equity ratio of 1.45 appears high, which has prevented it from investing in costly production expansion. Despite this, APA Corporation (NASDAQ:APA) reported growth on various other fronts in Q1 2024. The company’s operating cash flow for the quarter came in at $368 million, up from $335 million in the prior-year period. Moreover, the ongoing strength in the Permian region pushed US oil production above expectations, marking the fifth straight quarter of meeting or surpassing projected targets. APA Corporation (NASDAQ:APA) generated $99 million in free cash flow during the quarter. Its cash flow generation provides a sense of reassurance for income investors.
APA Corporation (NASDAQ:APA) declared a quarterly dividend of $0.25 per share on May 23, which fell in line with its previous dividend. The stock’s dividend yield on June 10 came in at 3.39%. Due to its strong cash flow generation, the company was able to return $176 million to shareholders through dividends and share repurchases, which places APA on our list of the best dividend stocks from the oil and natural gas sector. According to analysts, the stock’s forward P/E multiple of 6.80x makes it a relatively cheap option. Street analysts have kept an average price target of $37.8 for APA, which shows a 30% upside potential from its current levels. We believe the best time to purchase the stock was in 2021, when it was trading at around $19 per share, coinciding with insider buying.
APA Corporation (NASDAQ:APA) was a popular buy among elite funds at the end of Q1 2024, as hedge fund positions grew to 45, from 35 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of nearly $340 million.
