Advice on a stock I own: APC (Anadarko Petroleum)

Discussion in 'Business, Investing & Finance' started by BMF, Apr 14, 2019.

  1. FireFoley

    FireFoley Senior Member
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    Excellent job on your APC trade and I am 100% in your camp regarding the watching of OXY in the future and I have it on my screen for a potential long position in the future. Yes the common stock dividend yield is quite attractive, but I am going to pass on it for now knowing that have to service that newly issued 12B in debt and the !0B in preferred to Buffett, not to mention the other preferreds before the common holders get paid. However if oil prices continue their downtrend, that will just put added pressure on the company (as it will with most companies) and I am sure that you are aware many smaller companies with high debt levels are teetering on bankruptcy as we speak in the oil patch. Now I am not saying that OXY is in that camp, YET, but if prices deteriorate due to a worldwide slowdown, I assure you that many of the biggies will be sitting outside OXY's door waiting to help if they need it. They are too big and have too many good assets to be forced into bankruptcy, so I too think that in the right circumstance, a purchase of the stock might be warranted more so as a takeout candidate. It will be worth the watch.
     
    • FireFoley

      FireFoley Senior Member
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      Well I am back to the OXY watch as sometime in the 3rd Quarter, Buffett took a stake in the OXY common stock. Today it reached a year low below $38/share. There is no way of knowing exactly what Buffet's avg. cost is or even if he still owns it (probably does), but I find it interesting that he now owns a large position in the common stock while also holding a $10B stake in preferreds yielding 8%. Guess $800M a year in one company was not quite enough LOL. I am sure the stock will get a small pop tomorrow on this news, but in the same week that Icahn exited OXY saying the stock is just too dangerous to own given its huge debt load.
       
      • GatorInGeorgia

        GatorInGeorgia Senior Member
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        Interestingly enough I saw this same news. What also caught my eye is Buffett trimmed his position in Phillips 66 (PSX), which is a refiner (granted his PSX position is pretty small). Generally speaking, refiners typically do better with lower oil prices and worse with higher oil prices (lower input costs equates to more profit). Could these two transactions (buying OXY, an E&P company and selling the refiner PSX) be a sign that Buffett believes oil prices are going higher over the next several years so he wants to own the company that benefits from higher oil prices while selling the refiner that would be hurt with higher oil prices? Maybe, maybe not but food for thought.
         
      • FireFoley

        FireFoley Senior Member
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        You make a good point @GatorInGeorgia how the refiners do better as oil prices decline as the Crack spread usually widens, but based on all the research and reports, there is almost no one that thinks the price of oil will go up at all in the near to mid term future. So perhaps Buffett is doing it as contrarian play and the fact is oil prices might go up. but my argument is the world is awash in oil, the US is awash in oil, so what is the answer to that? political Turmoil? well didn't that just happen with the so called bombing or drones hitting Saudi Aramco? Yes oil spiked the most on a % basis in one day but 2-3 days later it had given back all of those gains, so not even political BS can cause oil prices to rise. Is it perhaps to instill confidence in the company being that most everyone is negative on OXY with all the debt they put on to acquire APC, including the 10B to Buffett. But many of the every day stock person does not follow credit or preferreds, so may not even know he has 10B in preferreds, but will know he has a 300M invested in common stock, b/c he has to file that. But in reality 300M is a small stake for Buffett, so maybe it is just a PR move. Or maybe it is a contrary play and oil might actually go up. Perhaps they feel that the debt load is not an issue, that the stock is cheap and at 38 it pays an 8% common stock dividend. I personally am leery of the 8% yield and would be expecting a dividend cut in the coming. year. But I am going to keep my eyes on it.
         
        • GatorInGeorgia

          GatorInGeorgia Senior Member
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          @FireFoley you make some valid points. There are logical arguments that can be made by oil bears and bulls alike as to why oil prices will decrease/increase. Rig counts here in the US have dropped pretty substantially and the number of DUCs have recently fallen (but still elevated). Lots of E&P companies are saying they are cutting CAPEX (which should support higher prices) but plenty of companies have shown tendencies in the past if being irresponsible by over drilling. I guess all we can do is stay tuned.
           
        • FireFoley

          FireFoley Senior Member
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          For those still following, even when oil shot up momentarily when we were "at war" with Iran, oil stocks barely budged. However since bottoming out at around $37, OXY is closing in on $48/share. I knew there would be a good spot to purchase I just did not have to ballz given that huge debt level.
           
          • BMF

            BMF Bad Mother....
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            MRO is at close to a 52 week low right now ($11.37), I'm down about $800 on 400 shares. I'm thinking about adding another 100 or so. Thoughts?
             
          • no1g8r

            no1g8r Bringing Reason to the Masses
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            What is your primary objective in buying more shares? Do you actually want to own more, or are you seeking to lower the cost basis to increase the chance of getting out with a small profit?
             
          • FireFoley

            FireFoley Senior Member
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            This is my opinion only and also including some actual #'s. when oil was in the low to mid 40's I purchased two different large diversified oil Co.'s, both with just under a 7% dividend at the time. Well oil hardly moved and yet both these stocks went up about $7/share. I thought maybe sell but did not b/c I was in the black and liked the yield. Well fast forward to recently and oil cracked $60 a barrel and those 2 stocks were about where I purchased them or a little below. I sold them and realized that oil stocks just can't go up or catch a bid even when oil prices spike. I have decided that like so many others, that the world is awash in oil, and you also have many people especially tons of funds, money managers and ETF's that will not touch anything fossil fuel. My feeling is that if I go back into one of these common stocks it is going to be ONLY for the dividend and I will use it sort of like a bond proxy but knowing there is capital risk. But I will be confident that the dividend will remain and can be covered. Otherwise I am going to wait and see if these types of stocks can find any favor in the investment world.
             
            • FireFoley

              FireFoley Senior Member
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              Could be a couple of reasons depending on the investor. it lowers your cost basis and the old theory of if nothing has changed and you liked it at price X then maybe you like it even more at X minus whatever. Also if it is a dividend payer, the yield % increases as the price of the shares decline
               
            • BMF

              BMF Bad Mother....
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              This is my primary objective, dollar cost averaging basically.

              @FireFoley thanks for the input. I'll take a look at it and make a choice. I'm sitting on some cash right now in my Roth and I'm concerned about using it (I'm concerned about a correction). I agree w/ you on the dividend. Most of the stocks I own are dividend stocks, but I have bought a few that aren't w/ mixed results.
               
            • GatorInGeorgia

              GatorInGeorgia Senior Member
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              Do it.
               

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