18 diciembre 2006

ConocoPhillips: One of the World's Great Bargains -- Barron's

Through shrewd acquisitions, ConocoPhillips is now the third-biggest U.S. energy company. COP shares were punished after its Dec. '05 $35b acquisition of Burlington Resources, which it acquired when natural-gas prices were double their current level. Barron's likes the company:

  • Its 7x P/E ratio is the lowest among all the DJ Global Titans (the 50 largest companies worldwide), making it "too cheap to ignore" according to Robert Marcin of Defiance Asset Management. Put in another way, investors currently pay only $9/barrel for each of the company's 10b barrels of reserves.
  • Respected shareholders include Berkshire Hathaway Inc. -- "one of the company's biggest fans," owning 18m shares and doubling its holding this year -- Davis Selected Advisers, Wellington Management, Dodge & Cox and Barrow Hanley.
  • Its rock-bottom P/E ratio and global asset base make it an attractive buyout target despite its massive $120b market cap.
  • The company recently announced it will exercise restraint with acquisitions and beef-up share repurchases.
  • Spun off from E.I. DuPont de Nemours in 1998, COP was worth only $12b just seven years ago -- now it is North America's largest natural-gas producer and its second largest refiner. It built itself on purchases such as a 19% stake in Lukoil and buying Tosco, a major U.S. refiner. Morgan Stanley's Doug Terreson: "The record speaks for itself; [CEO Jim] Mulva has made a lot of out-of-consensus purchases that have substantially rewarded shareholders."
  • It received little credit for its Canadian oil sands position, which it strengthened in October reaching a deal with EnCana Corp. that gives COP half of ECA's enormous oil-sands reserves, which could yield 5-6 billion barrels of crude. Production, now 50k barrels daily, could hit 400,000-500,000 by 2015.
  • While some bears don't like that a high-percentage of its reserves are in mature fields, Mulva says critics are underestimating the technology available to extend the lives of older fields.
ConocoPhillips assets have an estimated value of $95/share, $20 above current prices, making it "one of the biggest bargains in the energy sector and, indeed, among all of the world's largest publicly traded corporations, even though some analysts haven't yet awoken to the fact."

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