Why APA Stock Just Popped

Independent oil and gas producer APA (NASDAQ: APA) gained 3.8% through 1:30 p.m. ET as news continues to pour in concerning Israel's attacks on Iran, and Iran's response to same.

Israeli warplanes struck multiple targets in Iran last night, prompting drone strike reprisals from Iran, and threats of more of the same. Investors worry oil supplies from Middle East producers could be at risk, and oil prices are on the rise in anticipation of this.

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What this means for oil prices

So far this afternoon, OilPrice.com is clocking a 6.5% rise in the price of WTI crude oil to $72.50 per barrel. International benchmark Brent Crude oil is up 6.4% and selling for just under $74 a barrel.

It's a knee-jerk reaction to the Israel-Iran news, to be sure, but don't expect these price rises to disappear anytime soon. To the contrary, as the conflict continues and potentially widens to include neighboring countries, worries could rise even further -- and oil prices along with them.

Is APA stock a buy?

That's not necessarily bad news if you're invested in oil stocks, however. Logically, if the price of oil rises, then the profits of companies that sell oil, and their stock prices, will also rise. In the case of APA, we're looking at a mid-cap energy stock that earned $804 million in profit last year even before prices began rising, and that trades for only about 7.2 times trailing earnings today.

APA also pays a generous 5% dividend yield. Arguably best of all, APA generates superior free cash flow of $1.2 billion, or about 20% more than reported trailing-12-month earnings. This is unusual for an energy stock. It's a strong argument in favor of buying APA stock, whatever happens in the Middle East.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apa. The Motley Fool has a disclosure policy.