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Looking Ahead at Oil: ConocoPhillips (COP)

With oil hovering around the $90 a barrel mark, and share prices of big oil having earlier reached their highs this year, there may be more steam left in these stocks after all. ConocoPhillips (NYSE: COP), an integrated oil company based in Houston, Texas, with a market cap of $118.6 billion, last week traded as low as $69 a share, down from its previous year’s high of over $90 a share. Wednesday, January 23, it reported quarterly earnings of $2.71 a share with $4.4 billion in net income, an increase of 37%. For the full year in 2006, ConocoPhillips earned $15.6 billion on revenue of $167.6, or $9.66. The stock trades at just above a 10.6 PE.

Analysts’ estimates for the year ending 2007 are $10.11 per share, with @10.71 for 2008. ConocoPhillips currently pays a dividend of 41 cents per quarter, for a 2.15% yield. The consensus estimated growth rate for earnings is pegged at 11%.

These numbers compare favorably to other integrated oils. Exxon-Mobil (NYSE: XOM) currently trades at 12 times earnings, yields 1.64% on its dividend, and is projected to grow only at 8%, while its stock is trading in the mid-80s, closer to its twelve-month high of 95. Some value investors feel ConocoPhillips is at a good price for purchase now, if not a sweet spot. CNBC’s Jim Cramer pointed out on his Mad Money TV show last week that he didn’t think we’d see as low as a price as 69 on ConocoPhillips anytime soon, recommended the stock, and confessed to buying in himself at that price.

Is there anything else that might kick in for oil stocks and Conoco in particular? They have just signed a deal for a 50% along with TransCanada (TSX: TCA.Y) to purchase the Keystone pipeline, as well as ship its crude through. This pipeline will deliver Canadian crude to ConocoPhillips’ Illinois and Texas refineries, and could add significantly to ConocoPhillips’ potential production and revenue capabilities. ConocoPhillips is also the largest oil producer in Alaska and is attempting to get a new gas pipeline. ConocoPhillips has also been on an aggressive stock buyback campaign.

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