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Anadarko (APC) Takeover Speculation Boosts These ETFs

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The energy exploration company, Anadarko Petroleum Corp. (APC), hit headlines yesterday after takeover speculation by the big U.S. oil company Exxon Mobil (XOM) hit news wires. Following the news, Anadarko shares soared 4.23% in the key trading session of June 11.

The Anadarko stock has been in demand since it reached a settlement worth $5.15 billion in an environmental case in early April. Since then, the company’s shares surged more than 25% (read: Energy Exploration ETFs: A Bright Spot in The Choppy Market).

Not only the lawsuit settlement, but Anadarko Petroleum also came up with impressive results last quarter. Its adjusted earnings of $1.26 per share outdid the Zacks Consensus Estimate by 5.9% and improved from the year-ago number by 16.7%. The company’s total revenue of $5.84 billion breezed past the Zacks Consensus Estimate by 46.5%. Reported revenues also surged a whopping 50.1% year over year.

The revenue rise reflects solid natural gas, crude oil & condensates and liquids sales. The company also raised the midpoint of its full-year sales-volume guidance by 3.5 million barrels of oil equivalent. Its output guidance is pretty bullish over the next decade.

In mid May, the company’s board announced a hike in quarterly dividend by about 50%. All these hopeful factors made Anadarko a lucrative acquisition target.

In fact, last year, a market expert commented that speculations over Anadarko’s takeover by a giant company have long been making rounds on Wall Street. Anadarko‘s market cap is $54.7 billion at present while Exxon Mobil is a $437.8-billion company. However, investors should note that the takeover talks are only market buzz right now. Per Bloomberg, none of the parties involved have commented on this.  

Market Impact

APC shares flied high yesterday with about three times higher the average trading volume. Shares are also trading a little lower than the 52-week high of 109.0 per share. ExxonMobil also rose 0.5% yesterday. Over the last three months, Exxon Mobil shares added 7.48%, SPDR S&P 500 ETF (SPY) tracking the S&P 500 index returned 4.05% while APC shares moved up about 28%.

Though the deal is yet to see the light of day, investors keen on riding the recent run-up in APC shares as well as possible consolidation in the space can play the trend via the ETF route.  Market Vectors Unconventional Oil & Gas ETF (FRAK) has the largest exposure to Anadarko while XOM gets largest share in iShares U.S. Energy ETF (IYE).

FRAK in Detail

This ETF – a pure play on the unconventional energy space – provides exposure to the unconventional oil and gas segment, which includes coal bed methane, coal seam gas, shale oil & gas, and sands market. This fund follows the Market Vectors Global Unconventional Oil & Gas Index, holding 57 stocks in the basket. Volume and AUM are quite low for this large cap focused fund while the expense ratio is at 0.54%.

The in-focus Anadarko takes the top spot in the fund with about 8.98% of the total. Exploration & production takes the peak position in terms of sector exposure, while oil & gas integrated contribute decently (read: Strong Earnings Put Unconventional Oil ETF (FRAK - Free Report) in Focus).
The ETF added about 1.38% yesterday and 15.1% in the year-to-date time frame and has a decent Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

IYE in Detail

This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to the broad energy space. The fund holds 85 stocks in its basket with AUM of over $2.4 billion. The product charges 46 bps in fees per year from investors.

Exxon Mobil occupies the top position in the basket with a big chunk of asset at 21.7%. Anadarko also gets a position in the top 10 holdings but with much lesser share of 2.58%. From a sector perspective, oil & gas producers make up for three-fourths share while oil equipment, services and distribution take the remainder (read: Energy ETFs in Focus on Big Oil Q1 Earnings).

The fund was up 0.40% yesterday and added 9.34% so far this year and has a Zacks ETF Rank of 3 with a ‘High’ risk outlook.

Bottom Line

Even if the talked-about takeover does not take place, the aforementioned ETFs could be well in focus thanks to the U.S. shale-oil boom and the ever-growing need for cheaper gas across the world.

Also, recent geo-political tensions in major energy producing regions like Russia and escalating tensions in Iraq should lend a hand to these ETFs in the absence of any special company-specific driver.

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