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Dicker: Buy Anadarko Petroleum On $100+ Oil

Stocks in this article: APC CLR NBL EOG XEC

NEW YORK (TheStreet) -- Oil continues to show strength, a trend I predicted would prove itself out throughout 2014, despite the majority of analysts who expected prices to fall. While many of the domestic, independent exploration and production companies have shown strength this year in response to higher oil prices, a few remain undervalued. One of them, I believe, is Anadarko Petroleum (APC).

We've seen big moves from some of the hot players in some of the hottest shale plays here in the U.S. In the Bakken, Continental Resources (CLR) continues to cook. In the Eagle Ford, EOG Resources (EOG) is running. In the Wolfcamp area of the Permian shale play, Pioneer Natural Resources (PXD) and Cimarex (XEC) are continuing to rally.

Both Jim Cramer and I have highlighted these companies in the past and we don't at all believe that their stories are ending, but there are other companies that show deeper value to me that I think are due to make some terrific strides equivalent to the stocks I've just mentioned.

Of them, the most undervalued appears to me to be Anadarko Petroleum. If you were just listing the hottest potential oil developments in the U.S., you'd see that Anadarko has a major footprint in most of them, including the Marcellus, Eagle Ford Shale and in the Shenandoah basin in the Gulf of Mexico. In their latest call reporting fourth-quarter 2013 results, Anadarko showed a sequential increase in volumes of over 25% and an increase in sales of 12%.

Based upon the valuation of reserves and the production growth, shares of Anadarko, if it were being valued in the same way as an EOG Resources or a Continental would be closer to $125 instead of the $83 it trades at today.

Mostly that is because of the overhang of the liability of Tronox bankruptcy litigation, where a federal court asserted that Anadarko's liability could amount to $14 billion. Anadarko has appealed that decision and has estimated as little as $845M total liability in financial statements.

Neither figure is likely to be the true one, but Anadarko has made cash allocations to manage as much as a $6 billion cost from Tronox. Anything at or below that as a settlement will allow shares to rapidly move higher.

I believe a settlement is coming in the next several months, with the stock beginning its rally well before it will be announced. Indeed, I expect shares of Anadarko to trade north of $130 with the Tronox case behind it.

I talk more about oil prices and the prospects for Anadarko with Jim Cramer in the video above.

At the time of publication the author had no position in any of the stocks mentioned. Jim Cramer's charitable portfolio Action Alerts PLUS holds APC.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 25 years of oil trading experience. He is a licensed commodities trade adviser.

Dan is currently President of MercBloc LLC, a wealth management firm and is the author of "Oil's Endless Bid," published in March of 2011 by John Wiley and Sons.

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