About four months ago, I wrote a contrarian piece on Anadarko Petroleum Corporation (NYSE:APC) at a time when it was seriously underperforming it peers. As at March 11 when I last wrote on Anadarko Petroleum, the company’s peers such as: EOG resources was up 46.84%, RRC was up 10.40%, COG was up 8.67% and our own APC was up by a measly 1.09%.
Despite the underperformance, I was stubbornly bullish on the stock and I specifically said, “Anadarko will get back to its current 52-Week high of $98.47 before or when its Q1 2014 results are released in May. I am interested in August calls the APC Aug 2014 87.500 call (APC140816C00087500) should be ripe for the taking when Anadarko crosses $90 apiece.”
4 Months Later
The August call option I recommended has moved from a $4.50 asking price to trade around $19.20 to make an unbelievable 326% increase in four months. The underlying stock that was trading around $85 per share has also jumped an impressive 27.78% as the chart below shows.
Anadarko Shows More Upside Potential Ahead
Anadarko is set to release Q2 2014 earnings on July 30 and investors and traders alike are wondering if Anadarko is nearing a top now that the company has traded high beyond expectations. Anadarko released better than expected results in the first quarter when it posted earnings of $1.26 per share to beat analysts’ estimates of $1.19 per share. The better-than-expected results deviate sharply from the worse-than-expected results that the company posted in the previous 2 quarters.
After delivering strong first quarter results, the company raised the midpoint of its full-year sales-volume by 3.5 million BOE. I have already done justice to why Anadarko has left the shores of underperformance in the March article and I strongly believe that Anadarko will deliver another impressive quarterly result in the next 3 weeks.
Continued Upward Pressure on Oil Prices
The continued instability in the Middle East especially as it concerns Iraq will continue to drive oil prices higher to provide increased growth in revenue and income for oil players such as Anadarko. Critics might argue that Anadarko does not generate all of its revenue from oil; yet, an increase in the general oil prices will drive an increase in the share price of potentially buoyant oil plays.
If the rumor mills are to be believed, it appears that Anadarko might soon become the target of an acquisition by Exxon Mobil Corp (XOM), Chevron (CVX) or BP. Rumors or not, Anadarko will continue to benefit from the positive vibes being generated by the possibility of an acquisition and we can expect the stock to trade higher when the news is substantiated.
How to Trade APC Calls
I reiterate my bullish position on Anadarko based on the strong business fundamentals that hints at sustained growth on the horizon. Anadarko options are become somewhat pricey in comparison to its peers; yet, the APC Jan 2015 115.000 call (APC150117C00115000) is attractive at its $6.95 asking price.
— Daily Option Alerts