Chris Davis (Trades, Portfolio) is a portfolio manager for the Davis Large Cap Value Portfolios. Davis Selected Advisors was founded in 1969, offering clients investment opportunities through mutual funds, variable annuities, separately managed accounts, and offshore funds. Throughout the course of the company's history, their primary focus has been to invest in securities at value prices and hold them for long term growth. Davis has a firm belief that perspective, discipline and alignment are the three biggest drivers for long term investment success.
In the fourth quarter of 2015, Davis purchased 13,300,208 shares of Apache Corporation (APA, Financial).
Apache Corporation is an independent energy business that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. Apache Corporation explores and produces interests in the U.S, Canada, Egypt, Australia, the U.K (North Sea) and Argentina.
Today, Apache Corporation has a market cap of $16.72 billion, an enterprise value of $24.29 billion, a P/B ratio of 6.50 and a dividend yield of 2.38.
In early January 2015, Oakmark Fund commented on Apache stating:
“The largest detractor for the year was Apache (NYSE:APA) (U.S.), a global oil and gas exploration and production company, whose shares fell 28%. As with most oil and gas exploration and production companies, Apache’s share price has been adversely affected by persistently weak oil and natural gas prices. In this challenging environment, the company is focused on improving capital efficiency, both through the efficient development of U.S. shale assets and the low-cost growth of international assets. Firm-wide operating costs continue to fall, and capex has decreased by almost 60% this year. We believe Apache's capital productivity is improving at a faster pace than its global peers, which helps its position on the cost curve. Apache has what we consider to be a healthy balance sheet, which should allow the company to endure a prolonged downturn, and we expect that an eventual commodity price recovery will highlight the growing value of Apache's underappreciated asset base."
The recent declines in U.S oil prices is nothing new to Apache. In the company's 62-year existence, they have had to battle the adversity of oil price volatility, while still maintaining their operations and expanding their company globally. In 1986 the price of oil fell below $10 per barrel and natural gas was cut in half. The company used this adversity to their advantage by multiplying its oil and gas reserves nine-fold and quadrupling its assets to $1.9 billion. By 1994, Apache ranked as the world's 21st largest gas producer and 24th largest oil producer, up from 53rd and 93rd a decade earlier.
Davis knows that oil prices are highly volatile and that Apache Corporation has been able to weather the storm sustaining the variance involved within their industry throughout the company's history. Davis is betting big on Apache because he knows that they're an efficient, resiliant company that can not control crude oil or natural gas prices. The company can only do their best to maintain efficiency, while using their past experience as motivation to get through the tough times. If crude oil prices can get back to where they were setting records back in June 2008, the company's earnings and market price could skyrocket.
This quote was taken from the company’s book “Against the Grain,” as one of the company's primary philosophies.
“In Africa every morning a gazelle awakens knowing that it must out-run the fastest lion if it wants to stay alive. Every morning a lion wakes up knowing that it must run faster than the slowest gazelle or it will starve to death. It makes no difference whether you are a lion or a gazelle: When the sun comes up you had better be running.”
Cheers to your investment success.
