Why ConocoPhillips Is the Energy Sector's Best Bargain
Shares closed Tuesday at $80.42, up nearly 14% for the year to date.
Conoco's management deserves praise for the company's quicker-than-expected turnaround following its 2012 spinoff of its refining business, now Phillips66
The Conoco of today has a business that is easier to understand. After exiting out of the unpredictable downstream business, the company has become a pure play energy and exploration (E&P) company. Management's wants to capitalize on the expected recovery in U.S. energy production.
Even more impressive, despite Conoco's year-to-date outperformance, the stock is still cheap. Shares are trading at a P/E of 11, which is eight points higher than the industry average P/E of 19. Consider, both BP
I think Conoco management is unfazed, however. They weren't available for comment on the valuation or how the company's progress is viewed on Wall Street.
From my vantage point, Conoco is one of the best bargains in energy. Even based on 2015 estimates of $6.60, these shares are only trading at a P/E of 12 -- still under the industry average. At around $98 per share, investors looking for a strong oil producer should consider Conoco. These share should reach $110 in the next 12 to 18 months.
The reason for my optimism is simple. First, at some point Conoco will surpass large exploration and production titans like Apache
Investors should also be encouraged by the ongoing investments management is making in areas like natural gas, which should pay handsome dividends over the next couple of years.