This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

ConocoPhillips Shows Bigger Isn't Better, as Big Oil, Exxon Lag

NEW YORK (TheStreet) -- The best Big Oil stock may be the one planning to become smaller.

Investors looking to find stock profits in the gargantuan but slow-growing earnings of Big Oil companies have been disappointed in 2012, but as May approaches, there's reason to focus on the upcoming split of ConocoPhillips (COP - Get Report) over the earnings results of ExxonMobil (XOM - Get Report), which again disappointed investors.

As industry giants like ExxonMobil, Chevron (CVX), BP (BP) and Royal Dutch Shell (RDS.A) lag rising markets, an ambitious breakup strategy by ConocoPhillip may be a strong target for those in search of a needle-moving investment within a Big Oil group of stocks that don't seem to budge.

After ExxonMobil reported that its first quarter profit dropped 11% to $9.45 billion, or $2 a share on Thursday -- missing Wall Street consensus of $2.09 -- it's hard for investors to be encouraged. Slowing energy production that is cutting into earnings and a share price not keeping pace with rising markets can make a profit that rivals the GDP of nations seem inconsequential. Even a 21% dividend raise by dividend laggard Exxon Mobil -- announced a day before the weak earnings -- wasn't enough to keep shares from selling off. ConocoPhillip's split into two separate oil exploration and refining companies, on the other hand, may be a worthwhile investment for Big Oil-inclined investors.

How to Turn Apple's Stock Into an Income Stream >>

According to Oppenheimer energy analyst Fadel Gheit, the move "will create two strong companies, including the largest E&P company in terms of production, proved reserves and market value, and the second-largest refiner in the US." Gheit estimates that after the split and previously announced asset divestiture programs, both companies will have stronger balance sheets and higher dividend yields than their new non-integrated oil industry peers.

"[A] successful implementation of the divestiture program and the use of proceeds to reduce debt and supplement operating cash flow in funding profitable growth could provide the needed catalyst to boost stock performance further."

On May 1, ConocoPhillips will spin its downstream unit that includes a chemicals and refining and marketing business into a new publicly traded stock, Phillips 66, ticker symbol "PSX." ConocoPhillips shareholders will get a share of PSX for every two shares of their existing shares, while retaining their interest in the company's upstream oil exploration business, which is among the largest in the U.S.

"COP will continue its 'shrink to grow' strategy by selling non-core assets and investing in high-return projects, while PSX will reduce its refining focus by selling assets and shifting capex to high-return petrochemicals and midstream projects," adds Gheit.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
COP $47.79 0.00%
XOM $88.40 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs