The market has seen one of the biggest rotations in recent years over the past month.
High yield blue chips have held up extraordinarily well despite the turmoil in the market.
ConocoPhillips is one of those blue chips that has managed to post gains in the last month and continues to be a safe dividend play in the market.
The last month has seen one of deepest and violent rotations investors have experienced in years. High PE names like Netflix (NASDAQ:NFLX) and high momentum sectors like biotech that led the market higher in 2013's huge rally have cratered over the past month.
Meanwhile, solid-yielding blue chips with reasonable valuations have held up quite well. Many have even managed to post gains while the overall market has had a significant decline. Saturday, I profiled one of these blue chips, Microsoft (NASDAQ:MSFT). Today we look at one of the better-performing large caps in the market over the past 30 days, ConocoPhillips (NYSE:COP).
One of the main reasons Conoco has posted an over 5% gain in the last month is money is moving to the high yield, safe large cap stocks in the market. Conoco's 3.9% yield certainly qualifies it as a good yield play. 10 year treasury yields have also declined to a 2014 low of 2.6%. This is down from just over 3% to start the year.
Unless rates spike in the next few months - a low probability event - this should continue to be supportive of high yield plays. In addition, the shares pay a higher yield than the other two domestic energy giants. Chevron (NYSE:CVX) pays a 3.4% dividend and Exxon Mobil (NYSE:XOM) yields 2.6%.
Even with their recent run-up, the shares are priced at ~11.5x forward earnings. Exxon is priced at over 13x forward earnings and Chevron is in-line with Conoco's forward earnings valuation. It is cheaper on an operational cash flow [OCF] basis. Conoco is priced at under 6x OCF. It is also reassuring that Conoco has beat earnings estimates by at least a penny for six straight quarters.
Growing North American Production:
The main reason I only own Conoco among the three biggest domestic energy concerns besides the higher dividend yield is that the company is transforming itself into a North American focused pure E&P play.
ConocoPhillips divested its refinery assets through the spin-off of Phillips 66 (NYSE:PSX) in 2012. 60% of its capital budget is allocated towards growing production in North America. It is seeing double-digit increases in production in its acreage in the Bakken, Eagle Ford and Permian shale formations in the United States. The highest natural gas prices in years are also a nice tailwind.
In summary, although I do not expect big returns from ConocoPhillips in 2014, I do expect a respectable overall return with its dividend yield and some capital appreciation. It is a good solid single in a market that is seeing an increasing amount of strike-outs.
Disclosure: I am long COP, MSFT. 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.