Anadarko: Zacks’ Bear of the Day Play

Not sure if you’ve been paying much attention to the oil market but things are getting back for Texas Tea. Once a perpetual $100/barrel bringer, the market has taken a turn south and is having a tough time finding support, let alone rebounding. There are a few reasons for this, among them is the strength of the US dollar. As the dollar gains against the majors, it puts pressure on commodity prices. Makes sense when you think about it, if my dollar is “worth more” then it should be able to buy more things. In the case of oil prices, that’s a bearish situation.

Another reason is all the new supply that has been coming to the market with the new fracking technology that’s developing as well as the ability to get barrels out of oil sands. The US has never had as much supply as it does today, and this is certainly having an effect on prices. As a result, you may want to shy away from most oil stocks. Especially when the entire market is taking it on the chin like we’ve been seeing for the last week or so. It should come then as no surprise when I name today’s Bear of the Day, Anadarko Petrol (APCAnalyst Report).

Depressed prices for crude have had a negative effect on this Zacks Rank #5 (Strong Sell). Anadarko is one of the world’s largest independent oil and gas exploration and production companies. Majority of the company’s total proved reserved are located in the US, primarily in the mid-continent area of Kansas, Oklahoma, and Texas, as well as offshore in the Gulf of Mexico and in Alaska. The small remainder of the company’s production is in Algeria. The company also owns and operates gas gathering systems in its US core producing areas.

Analysts have noted the effect of a lower crude oil price on APC’s bottom line. As a result, eight analysts have lowered their numbers for next year and seven for the current year. This year’s numbers have dropped from a consensus of $5.51 sixty days ago down to current consensus at $5.34. Next year’s numbers don’t really look much better. The drop here goes from $5.85 sixty days ago down to $5.31 today. That’s a drop of over 10% in expectations. With oil falling even further, these numbers could look a whole lot worse before all is said and done.

By looking at the chart, you may think that the worst is over. After trading below $75 at the end of 2013, APC had a great year, climbing all the way past $110 per share in a matter of only a few months. A big chunk of this run happened during April 2014 when the stock popped from the $80 to over $100 in one day. But mid-September proved to be the top as oil prices began to weigh the stock down and eventually APC began to tumble. In the last month APC has dropped all the way back down into the low $80s, a far cry from the century mark it recently enjoyed.

Investors looking to stand in and buy within the oil exploration and production industry can look at Cobalt International Energy (CIESnapshot Report). Cobalt is currently a Zacks Rank #1 (Strong Buy).

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