Cyclical companies aren't for the faint of heart or bad of timing. But darn if it doesn't feel good to own them when they crest. Case in point: investors in oil major ConocoPhillips (NYSE:COP) have been riding high all year, reaping 48% returns on their stock and leaving the rest of the S&P 500 in the dust. In all likelihood, tomorrow's early morning Q4 and full-year 2005 earnings report will just add fuel to the good news fire.
Wall Street wisdom:
- General consensus. Nineteen analysts follow Conoco, and they're by and large a bullish lot. Eleven rate the company a "buy," with the rest saying "hold."
- Revenues. There's two ways to make your sales soar: Sell more stuff, or sell it for higher prices. Own a car? Then you can guess which one helped Conoco to boost sales by 24% last quarter.
- Earnings. Need another hint? Analysts think the company earned 49% more profit this quarter than last.
Margin watch:
Conoco's margins are a thing of beauty (until you realize these profits are coming out of your wallet). Gross margins may be declining, but on the lines that really count -- operating and net margins -- it's up, up, and away.
|
Margins % |
6/04 |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
|---|---|---|---|---|---|---|
|
Gross |
33.4 |
32.7 |
31.7 |
31.2 |
30.2 |
29.2 |
|
Op. |
11.5 |
11.8 |
12.6 |
13.4 |
13.8 |
14.4 |
|
Net |
6.1 |
6.3 |
6.8 |
7.5 |
7.7 |
8.2 |
Valuation metrics:
Here's where things get surreal. Conoco's stock in trade -- oil -- is more in demand than it's ever been before, and fetching historically high prices. Yet the company's P/E is a mere 7.5! Kind of strange when you consider that competitors like ExxonMobil (NYSE:XOM), BP (NYSE:BP), Chevron (NYSE:CVX), and Amerada Hess (NYSE:AHC) all sport P/Es in the (admittedly low) double digits.
At these prices, might Conoco be a relative bargain? It gets a Fool to wondering.
Fool contributor Rich Smith does not own shares of any company named above.
