Does ConocoPhillips Present a Huge Opportunity?

 
on March 22 2013 10:08 AM

With shares of ConocoPhillips (NYSE:COP) trading at around $60.94, is COP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

ConocoPhillips recently made a major oil find in the Gulf of Mexico, which is possibly one of the largest finds in history. The find was made at Shenandoah 2 when the well drilled at 31,405 feet in 5,800 feet of water. The stock has been running higher since the news broke, and justifiably so. There are other positives for this story as well.

The Coronado well looks promising thanks to hydrocarbons indicators, there are plans on drilling between five and eight wells this year, and there are plans on drilling in the Arctic in 2014. After cutting costs and making strategic divestments, ConocoPhillips is now refocused on growth. For example, ConocoPhillips has doubled the amount of acreage it leases in the Gulf of Mexico to 2 million acres over the past two years.

ConocoPhillips might look like a solid option for an investment, but is it the best option in this space? The chart below compares fundamentals for ConocoPhillips, Chevron Corporation (NYSE:CVX), and Exxon Mobil Corporation (NYSE:XOM). These companies differ in size. ConocoPhillips has a market cap of $74.43 billion, Chevron has a market cap of $234.63 billion, and ExxonMobil has a market cap of $396.54 billion.

ConocoPhillips ConocoPhillips  http://wallstcheatsheet.com

It would be difficult to go wrong with any of these options. Prior to the oil find, ConocoPhillips was probably the weakest option of the three, but that isn’t the case anymore. Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for ConocoPhillips is weaker than the industry average of 0.30, but it still easily qualifies as normal.

ConocoPhillips ConocoPhillips  http://wallstcheatsheet.com

T = Technicals on the Stock Chart Are Strong    

ConocoPhillips has performed well over the past three years. Recent momentum has been strong.

ConocoPhillips ConocoPhillips  http://wallstcheatsheet.com

At $60.94, ConocoPhillips is trading above all its averages.

50-Day   SMA

58.64

100-Day   SMA

57.94

200-Day   SMA

56.89

E = Earnings Are Steady           

Earnings have been steady, but there was a moderate setback in 2012.

ConocoPhillips ConocoPhillips  http://wallstcheatsheet.com

When we look at the last quarter on a year-over-year basis, we see a decline in earnings.

ConocoPhillips ConocoPhillips  http://wallstcheatsheet.com/

Now let’s take a look at the next page for the Trends and Conclusion.  Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

Trends always support the industry. There might be fluctuations, but despite media hype about alternative energy potential, oil is still king and tremendously valuable. The only time trends won’t support the industry is in a deflationary environment. This will be a slight possibility when the FED unwinds, but that doesn’t seem likely to take place at any point in the near future.

Conclusion

With a major oil find, strong margins, good cash flow, an impressive 4.50 percent yield, and the stock trading at 9 times earnings, ConocoPhillips is an OUTPERFORM. However, all three companies listed in this article are long-term winners.

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