ConocoPhillips Nears A Great Buying Opportunity

Nov.23.11 | About: ConocoPhillips (COP)

It looks like the market will continue its selloff into the Thanksgiving holiday. As nerve-wracking as the troubles in Europe and the tumbling market are, the pull back is starting to present some good buying opportunities. One position I am looking to add to if it falls a few more dollars 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.)

7 reasons COP is a huge buy in the $60 to $65 range:

  1. It has long-term technical support in this range (see chart):

  2. COP would yield in excess of 4%, which would put another floor under the stock.
  3. COP is already a very cheap stock at 5 times operating cash flow and less than 0.4 times sales.
  4. There has been very little insider selling of stock over the last year, and the stock sells at just 8 times forward earnings, which is a discount to its five-year average.
  5. It has an A rated balance sheet and it is using its robust cash flow to retire a significant amount of stock in addition to its generous dividend.
  6. The spinoff of its refining business should provide a higher multiple on its remaining E&P business.
  7. The median analysts’ price target on COP is $80, S&P is at $93 and Credit Suisse has the same $93 price target on Conoco.

Disclosure: I am long COP.