Since last writing about ConocoPhillips (NYSE:COP) back in late April, the stock has gone from $58.91 to $64.84 for a 10% increase during which the S&P 500 is up 6.19%. The price appreciation isn't too bad when compared to the broader market, and on top of that Conoco has announced a 4.5% increase to its quarterly dividend payout. But because of all the good news surrounding Conoco, I want to take a step back and evaluate on a fundamental, financial and technical basis if it's worth buying more Conoco right now.
Conoco currently trades at a trailing 12-month P/E ratio of 11.06, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.82 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.99/share and I'd consider the stock cheap until at least $89.85. The PEG ratio (3.25), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Conoco is expensively priced based on a 5-year EPS growth rate of 3.4%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Conoco boasts a dividend of 4.25% with a payout ratio of 46.1% based on forward earnings while sporting return on assets, equity and investment values of 6.6%, 16% and 10.7%, respectively; which are all respectable values. If maybe you feel the market will retract a little more and would like a safety play then the 4.25% yield of this company is good enough for you to take shelter in for the time being.
Looking first at the relative strength index chart (RSI) at the top, I see the stock in overbought territory with a value of $72.11. With the relative strength index chart in overbought territory, I anticipate a short-term drop in the price. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is above the red line with the divergence bars increasing in height, indicating the stock has upward momentum but may be topping out a little bit. As for the stock price itself ($64.84), it has beat out every level of resistance there is. The $64.45 level, which acted as resistance should act as support now, and if it does hold as support, then the stock can go to $77.65. If the $64.45 level doesn't hold as support I can definitely see it retrace back to $62.48. Personally I would wait a couple of days to see how the $64.45 level acts and then decide from there, but for now it's too tricky to call something that is at a 1-year high.
- Conoco declared a $0.69/share quarterly dividend payable on September 3, 2013 with an ex-date of July 18, 2013. This marks a 4.5% increase from the previous dividend.
- Kazakhstan's government has said it will purchase the 8.4% stake owned by Conoco in the Kashagan oil field. This additional asset sale will more than likely be used to fund a share buyback program or help with the increased dividend.
Conoco used to be one of my favorite oil and gas companies to invest in, but I see nothing but slow growth in it for now. Indeed, this company is a value play based off of earnings but not off of growth potential. We did just get an increase in the dividend, but I want to capture growth with at least double digits. Conoco reports on August 1, 2013 and I believe that will be my line in the sand to see if I should be looking elsewhere.
Disclosure: I am long COP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are accountable for what you trade and happy investing!