Monday
Sep252006
More Conoco-Phillips (COP) All the Way Down
September 25, 2006 at 9:54 AM
I couldn't help myself. I had to add a little to my Conoco-Phillips (COP) position. As oil drops and oil stocks get killed I keep reminding myself that even if Conoco's earnings get cut in half at this price I will own a stock with a p/e of 10. If oil stops falling and stops in the mid 50's then I'll own a stock I bought at a p/e of 7. If oil goes back into the 60's then I'll own a stock I bought at a p/e of 5. So what the heck?
This past summer, Lehman analyst Paul Cheng called Conoco is the cheapest stock in the sector; it is still true. I would not buy unless I could explain this. A large portion of Conoco's assets are in oil as gas in the ground. Most analysts use a much lower future oil price when predicting earnings. (Paul Cheng uses a long term price of $35 per barrel). Thus, Conoco is penalized with lower forward earnings and a negative growth rate. And since Wall Street loves growth, this producer is penalized. So what does this mean? This means that if oil and gas prices continue to fall, I've paid a fair price for the stock. If oil and gas prices stay here or go up I've stolen the shares from short-term minded fund managers.
I think the recent drop in oil prices is because the news of recent discoveries is getting all the speculators out of oil. (Speculative interest in oil futures has dropped dramatically). For my argument as to why oil and gas are in a secular increase see my previous entry.
Disclosure: I own a bit more than a full position in Conoco-Phillips (COP). Right now I am more disposed to buy but a change in market conditions may mean that I sell a portion of my position.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
This past summer, Lehman analyst Paul Cheng called Conoco is the cheapest stock in the sector; it is still true. I would not buy unless I could explain this. A large portion of Conoco's assets are in oil as gas in the ground. Most analysts use a much lower future oil price when predicting earnings. (Paul Cheng uses a long term price of $35 per barrel). Thus, Conoco is penalized with lower forward earnings and a negative growth rate. And since Wall Street loves growth, this producer is penalized. So what does this mean? This means that if oil and gas prices continue to fall, I've paid a fair price for the stock. If oil and gas prices stay here or go up I've stolen the shares from short-term minded fund managers.
I think the recent drop in oil prices is because the news of recent discoveries is getting all the speculators out of oil. (Speculative interest in oil futures has dropped dramatically). For my argument as to why oil and gas are in a secular increase see my previous entry.
Disclosure: I own a bit more than a full position in Conoco-Phillips (COP). Right now I am more disposed to buy but a change in market conditions may mean that I sell a portion of my position.
Disclaimer: Nothing in this web log is meant to be a recommendation to buy or sell. I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. I do not log all my trades here. I only describe or mention those that I think might be interesting. Consult your own investment professional before buying or selling any security.
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