APA shares, up 98% in 52 weeks, slipped on Iran resolution hopes after an in-line quarter. Alpha Score 69. The fund cites free cash flow and Alaska upside.
Hotchkis & Wiley said APA Corp. (NASDAQ:APA) delivered second-quarter results that met expectations. The stock still fell, with the investment manager attributing the decline to oil prices retreating on hopes for a resolution to the conflict in Iran.
APA, an independent oil and gas exploration and production company with operations in the Permian Basin and Egypt, is a holding in the Hotchkis & Wiley Mid-Cap Value Fund. The fund returned 4.74% in the second quarter, lagging the Russell Midcap Value Index's 13.4% gain. The broader Russell Midcap Index rose 13.8% over the same stretch. Hotchkis & Wiley said technology and energy stock selection weighed on performance, while healthcare picks contributed positively.
Shares closed at $36.87 on Aug. 3, putting APA's market capitalization near $13 billion. The stock has gained 8.44% over the past month and 98.33% over the past 52 weeks.
Hotchkis & Wiley called the quarterly results "in line with expectations and supportive of our investment thesis." The fund also cited favorable natural gas price differentials and underappreciated reinvestment opportunities in Suriname and Egypt. Alaska adds another option, the fund said. APA offers strong free cash flow generation and an investment-grade balance sheet, Hotchkis & Wiley said. The stock trades at a valuation discount to its peers, the fund said.
Hotchkis & Wiley acknowledged concerns about a shorter Permian resource life. The fund still saw APA trading at attractive value metrics relative to its free cash flow yield and described the company as a way to play a structurally undersupplied global energy market.
Insider Monkey, which published the letter, said its database showed 49 hedge fund portfolios held APA at the end of the first quarter, up from 41 three months earlier.
AlphaScala's APA stock page carries an Alpha Score of 69 out of 100, a Moderate rating for the energy sector.
The fund's framing ties APA's near-term share price to the conflict in Iran. Hopes for a diplomatic resolution pulled crude lower and dragged APA with it. A settlement that brings Iranian barrels back would keep a cap on crude oil and, by extension, on APA. An escalation pushes both higher. The fund's commentary does not predict which path oil takes; it said only that quarterly results met expectations and that the stock fell on oil's retreat.
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