Conoco Phillips: A Good Buy, Once Again

This past week has been a hectic week, especially if you own an oil stock. The price per barrel has headed south and has taken oil stocks down with it. The company that I love here is Conoco Phillips (COP).

Here’s the company profile from Yahoo Finance:

Conoco Phillips operates as an integrated energy company worldwide. It operates in six segments: Exploration and Production, Midstream, Refining and Marketing, Lukoil (LUKOY.PK) Investment, Chemicals, and Emerging Businesses. The Exploration and Production segment primarily explores for, produces, and markets crude oil, natural gas, and natural gas liquids. It also mines deposits of oil sands in Canada and upgrades into a synthetic crude oil. As of February 21, 2006, the division had 9.4 billion BOE of total proved reserves.

The Midstream segment gathers and processes natural gas; and fractionates and markets natural gas liquids primarily in the United States, Canada, and Trinidad. The Refining and Marketing segment purchases, refines, markets, and transports crude oil and petroleum products primarily in the United States, Europe, and Asia.

The LUKOIL Investment segment consists of 16.1% interest in OAO LUKOIL, an international, integrated oil and gas company. The Chemicals segment manufactures and markets petrochemicals and plastics. The Emerging Businesses segment encompasses the development of new businesses, including new technologies related to natural gas conversion into clean fuels and related products, technology solutions, power generation, and emerging technologies.

The company also provides technological solutions in deepwater exploration and production, reservoir management and exploitation, 3D seismic technology, petroleum coke upgrading, and sulfur removal. It operates in the United States, Norway, the United Kingdom, Canada, Venezuela, Indonesia, offshore Timor Leste in the Timor Sea, Australia, Vietnam, China, Nigeria, the United Arab Emirates, and Russia. Conoco Phillips was founded in 1917 and is headquartered in Houston, Texas.

Conoco is down 10% for the past month and was down 5% for this past week. It currently trades at 6 times earnings, which is below its four year average of 9. When measured by price-to-book value, it trades at a juicy 1.3 times book value. In contrast, the industry trades 11.5 times earnings and 3 times book value. The S&P 500 trades at 21 times earnings and 4.2 times book value.

The company has consistent return on equity of 20%+ and return on assets around 10%. The company’s balance sheet is in good condition as it has close to 2-1 assets to liabilities. Net income has doubled since 2004 from 8 billion to 16 billion. Not only is revenue rising, the company is producing nice free cash flow.

The company has announced that it expects fourth quarter margins to be down and then came out with a statement that reserves have been piling up. Despite all this turmoil, guess what happens? The company announces a $1billion dollar buyback. Last quarter the company completed the acquisition of Burlington Resources (BR), an independent exploration and production company. It also increased its investment in Russian Oil giant LUKOIL.

I think the stock is worth at least $93. I have actually bought this stock twice and might change my name to “Roundtrip.” I bought it in late June at $62 and rode it to $71. Took the roundtrip as the price per barrel dropped and bought at $58.You might be thinking “sheesh sell it at $70 you dummy” well it’s not me to sell. I have been burned in the past for selling early.

One thing I will mention, I have not lost money. I will be adding COP to the WSL Portfolio and will be adding to the position every 10% it drops.

Disclaimer: I own shares of COP

COP 1-yr chart

Comments

[dcappe10:]

Well put, I would have to agree with your estimates of LukOil. There are many well to do russian Oil Stocks out there right now though. I recommend this article...

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Cheers!

2007 Jun 27 12:48 PM