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The shares of ConocoPhillips (COP) fell after the presidential election, along with the market and oil prices. However, COP's decline exaggerated that of oil. In light of the latest Mideast unrest and the release of fiscal pressure by Congressional leaders Friday, I think the decline in this stock has been overdone. As a result, its shares offer upside opportunity moving forward, and its gains should exaggerate that of most energy companies because of the company's new focus in E&P.

Since the election, and running through November 15, ConocoPhillips shares fell by 6.2%. Over that same span, the iPath GSCI Crude Oil TR Index (OIL), our barometer for oil prices here, dropped by a relatively modest pace of 3.3%. Since spinning off its downstream businesses in the form of new company Phillips 66 (PSX), COP is now classified as an Independent Oil & Gas Exploration & Production Company. So, for comparison purposes, we took a look at the performance of the SPDR S&P Oil & Gas Exploration & Production (XOP) security. The XOP dropped by 7.5% over the same span measured, reflecting a better match to COP's decline. COP's former integrated oil peer, Exxon Mobil (XOM) fell by a lesser 5.4% rate over the same span, so COP's performance was about in line with its new peers.

One reason why oil & gas exploration took a hit after the election was because of market perception that President Obama will be less supportive of fossil fuel exploration than Mitt Romney might have been. While the market may have a point, the latest conflict in the Middle East reminds us of the importance of energy independence. Furthermore, the geopolitical reminder acted as a stabilizer for oil prices against the latest downside pressure due to fiscal cliff fueled economic fears.

E&P stocks carry higher risk, as reflected by their bigger beta coefficients versus integrated companies. It's the result of their greater sensitivity to commodity prices. But now that the possibility of falling off the fiscal cliff seems less threatening thanks to the supportive comments of Congressional Leaders, downward pressure on oil prices due to economic concerns should ease. Meanwhile, tensions in the Middle East seem to be rising. Thus, I believe there should be a reversal of the latest price downtrend, which should work in favor of the shares of companies most sensitive to them, including ConocoPhillips . WTI Crude Oil was up about 3% in midday trading Monday, and United States Oil (USO) was up 3% as well.

A relief rally began for stocks just after the Congressional press conference concluded Friday, and ConocoPhillips was a participant. COP closed up by 0.81% on the day after a decline to start it, and the stock was up again a percentage point Monday morning. I expect that for as long as the government executes on the plan laid out Friday, then the latest gains should be just the start of a new price trend. How events develop in the Middle East will play a key role in how far or fast energy prices increase, but they should at least be supported due to the events that have already unfolded.

COP's performance is going to be significantly dependent on oil prices as it moves forward as an independent E&P. However, given my geopolitical outlook, with the confrontation of Iran seemingly imminent, oil prices should be supportive of exploration and production into 2013. Capital is seeking out these companies as well for all the same reasons, and including the push for domestic energy resources in the U.S. Valuation is not going to be overly important regarding this catalyst and anticipated move, as an industry relative swing should lift all ships in E&P in my view. As a result, COP, especially now that it is light of PSX's downstream operations, should find more exaggerated returns near-term. I'm picking up regular coverage of COP and anticipate critical analytical inspection of aspects of COP and its operations moving forward, so feel free to follow my column if interested in these shares.

Source: Buy ConocoPhillips On Performance Exaggeration