ConocoPhillips: High Yield, Low Valuation And Finding A Bottom

| About: ConocoPhillips (COP)

It has been another seesaw week in the markets. So far, we have seen three triple-digit moves on the Dow, and it is only Thursday. On the bright side, the turmoil in the equity markets has brought many blue chip stocks with high dividends down to bargain-bin prices. One stock that looks like a great long-term pick up at these levels is ConocoPhillips (NYSE:COP).

“ConocoPhillips operates as an integrated energy company worldwide. The company’s Exploration and Production (E&P) segment explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids. Its Midstream segment gathers, processes, and markets natural gas; and fractionates and markets natural gas liquids in the United States and Trinidad. The company’s Refining and Marketing (R&M) segment purchases, refines, markets, and transports crude oil and petroleum products, such as gasolines, distillates, and aviation fuels. Its Chemicals segment manufactures and markets petrochemicals and plastics.” (Business Description from Yahoo Finance)

Eight reasons COP is a great value at $63 a share:

  1. Conoco yields over 4% and has grown its dividend payout by over 11% a year over the past half decade.
  2. COP seems to be putting in a bottom at these levels over the last two months (see chart).

    Click to enlarge
  3. It has met or beat earnings estimates five of the six quarters and is priced at just 7.5 times this year’s earnings estimates.
  4. It has an A rated balance sheet and is priced near the bottom of its five-year valuation range based on P/CF.
  5. Its forward P/E of 7.3 is at a 48% discount to the overall S&P’s forward P/E.
  6. Conoco’s decision to split its upstream and downstream businesses should result in an overall higher market cap for the combination of the two companies.
  7. COP is expected to grow production by 3% a year 2012 through 2015 as new projects come on line.
  8. ConocoPhillips is selling significantly under analysts’ price targets. S&P has a price target on COP of $93 a share as does Credit Suisse. The median analysts’ price target on COP is $80.

Disclosure: I am long COP.