John Stephenson Apache Corp APA-Q PAST TOP PICK Dec 23, 2003

The 400,000 boed oil and gas producer with production in the US Permian, Egypt, and the North Sea recently reported a 42% increase in net income.  It trades at 6x earnings, under 2x book and supports a robust 79% ROE.  Its dividend is backed by a payout ratio under 15% of cash flow.  We recommend setting a stop-loss at $22, looking to achieve $39 -- upside potential of 36%.  Yield 3.7% 

Our PAST TOP PICK with APA has triggered its stop at $22.  To remain disciplined, we recommend covering the position at this time.  

In recently reported earnings, APA indicated they expect operational efficiencies to result in $130 million in cost savings.  The company has been prudently using cash reserves to aggressively retire debt and buy back shares -- all while providing a good dividend supported by a payout ratio under 50% of cash flow.  It trades at 6x earnings, 1.1x book and supports a 25% ROE.  We recommend setting a stop-loss at $13, looking to achieve $23 -- upside potential of 33%.  Yield 5.8%

Our PAST TOP PICK with APA is progressing well.  To remain disciplined, we recommend trailing up the stop (from $13) to $15 at this time.