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Foolish Forecast: ConocoPhillips

By Rich Smith – Updated Nov 15, 2016 at 7:06PM

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Views you can use to get clues on tomorrow's news.

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

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

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.

None

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Stocks Mentioned

BP p.l.c. Stock Quote
BP p.l.c.
BP
$28.08 (-8.80%) $-2.71
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$144.77 (-6.53%) $-10.12
Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$85.75 (-5.32%) $-4.82
ConocoPhillips Stock Quote
ConocoPhillips
COP
$100.59 (-8.60%) $-9.47
A. H. Belo Stock Quote
A. H. Belo
AHC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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