This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
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
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Why ConocoPhillips Is the Energy Sector's Best Bargain

NEW YORK (TheStreet) – With 17% year-to-date investment returns, ConocoPhillips (COP - Get Report) shareholders have few reasons to complain. The energy sector -- although improved -- has yielded gains of only 11%.

Shares closed Tuesday at $80.42, up nearly 14% for the year to date. 

Read More: BP Ex-CEO John Browne: Europe Has Energy Options to Loosen Putin's Grip

Conoco's management deserves praise for the company's quicker-than-expected turnaround following its 2012 spinoff of its refining business, now Phillips66 (PSX). But the company is not done and remains committed to extracting more value for its investors.

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 (BP) and Exxon Mobil (XOM) trade at higher valuations. This is even though both trail Conoco in gross margin, operating margin and revenue growth.

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 (APA) and Anadarko (APC). The company continues to make progress in the Eagle Ford Shale, which now accounts for roughly 25% of its production in the lower 48 states. This is one more example of how the company is moving in the right direction.

Read More: Warren Buffett's Portfolio Proves He's a Dividend Growth Investor

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.

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
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

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
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
COP $65.85 -2.50%
AAPL $130.42 1.26%
FB $80.41 1.07%
GOOG $555.48 2.13%
TSLA $207.19 1.68%

Markets

DOW 18,214.42 -10.15 -0.06%
S&P 500 2,110.74 -3.12 -0.15%
NASDAQ 4,987.89 +20.7530 0.42%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs