We have looked at APA a number of times in the last year, but after carrying an unwavering bullish outlook through 2025, we are slowly starting to temper that view as the stock approaches our target area. With the need to raise capital off the table for now and surprises unlikely in the near term after they reaffirmed guidance at the Macquarie Conference last month, the driving force looks set to be yield. APA is now expected to yield +6.9 % over the next 12 months and growing steadily from there. APA has regulated earnings which makes it ‘bond like’ in nature, however, unlike a bond the variable comes from their capex intentions i.e. how much they are spending to grow.
If rates are going lower (as we believe they are), bond yields are going lower, which means bond prices are going higher. Traditionally, APA is correlated to bond prices, and if we (and the market) now have a better understanding of their ability to fund growth without impacting distributions, it stands to reason that the APA share price will corelate with bond prices.
- We can see rate cuts pushing APA towards $9 through 2025/6, and as such, we aren’t selling yet, but we wouldn’t be chasing the stock into strength —MM holds APA in our Active Growth Portfolio and Active Income Portfolios.
MM is cautiously long and bullish on APA
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