Last time I wrote about ConocoPhillips (NYSE:COP) on July 17, 2013 (click here for the article) I stated that there was nothing but slow growth in the stock, that it was a value play and not a growth play. In my dividend portfolio I like to keep around stocks with earnings appreciation prospects and ConocoPhillips didn't provide that for me, which is why I just sold it (I sold it $1 below its 52 week high). ConocoPhillips explores for, produces, transports and markets crude oil, natural gas, natural gas liquids, liquefied natural gas and bitumen on a worldwide basis. On August 1, 2013, the company reported second quarter earnings of $1.41 per share, which beat the consensus of analysts' estimates by $0.11. The stock is up 1.59% since last writing about it and is beating the S&P 500, which has lost 1.42% in the same time frame, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to justify why I sold it (that isn't to say that you should sell it, it just didn't fit my investing thesis anymore).
ConocoPhillips currently trades at a trailing 12-month P/E ratio of 10.69, 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 10.78 is currently inexpensively priced as well for the future in terms of the right here, right now. The forward P/E value which is higher than the trailing twelve month P/E value tells us the story that there is no growth in earnings for the next year. Next year's estimated earnings are $6.12/share while the trailing twelve month earnings per share were $6.17. The one-year PEG ratio (1.53), 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 1-year horizon) tells me that ConocoPhillips is fairly priced based on a 1-year EPS growth rate of 6.95%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. ConocoPhillips boasts a dividend of 4.18% with a payout ratio of 43.6% of earnings while sporting return on assets, equity and investment values of 6.3%, 15.4% and 10.7%, respectively, which are all respectable values, but nothing to write home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.18% yield of this company is good enough for anyone to take shelter in for the time being. The company has raised its dividend for 13 straight years with a five-year dividend growth rate of 13.1%. Most recently the company only raised the dividend 4.5%.
Looking first at the relative strength index chart (RSI) at the top, I see the stock near middle ground territory with a value of 52.02 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, indicating the stock has downward momentum. As for the stock price itself ($65.98), I'm looking at $67.38 to act as resistance and $63.73 to act as support for a risk/reward ratio, which plays out to be -3.41% to 2.12%.
- ConocoPhillips owns a 30% stake in the Ardennes-1 well which Cobalt (NYSE:CIE) failed to find commercial oil or gas which takes away from future revenues.
- The company sold its Trinidad & Tobago natural gas assets for $600 million which will result in about $290 million in after-tax gains bringing its total assets sold from 2012/2013 to $14.1 billion.
- On the flip side of selling assets, the company is in talks with India's Oil & Natural Gas Corp. for buying a stake in the KG basin off of India's east coast.
ConocoPhillips is inexpensively valued based on future earnings and fairly valued on future growth prospects (one-year outlook). Financially, the dividend payout ratio is middle of the road and I don't doubt management will be able to continue to increase the dividend going forward but probably at a small rate. The technical situation of how the stock is currently trading is what is telling me that it can trade a bit lower for now as the stock has downward trajectory on the RSI and MACD charts. The reason for selling the stock was because it was at its 52 week high and I saw that I would be paying the same now for future earnings as I did for past earnings which to me is indicative of no growth. Since the stock is near its 52 week high it has a long way to come down if we start to see a sell-off in the broader market. As I stated earlier, just because it isn't a good investment for me, it doesn't mean it's not a good investment for you; it is still a great company. I took the proceeds from this sale and found a different stock in the Basic Materials sector which has the growth I'm looking for and initiated a position in, Transocean (NYSE:RIG). If you would like to read up on why I bought Transocean click here. For the time being I will leave you with this quick table comparing ConocoPhillips to Transocean, where Transocean wins seven of the eleven metrics I look for in a stock.
Disclosure: I am long RIG. 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 responsible for what you trade and happy investing!