ConocoPhilips has the right upstream/downstream mix

Posted Apr 3rd 2008 4:21PM by Joseph Lazzaro
Filed under: ConocoPhillips (COP), Oil, Stocks to Buy

Readers of this space know that one of the preferred sectors is oil and oil services. Given oil's importance in a growing global economy, oil and oil services companies are likely to continue to experience steady demand for their services/products. And with above in mind, ConocoPhilips is worth a review.

ConocoPhilips (NYSE: COP) is the third largest oil company in the United States. With proven reserves of 35 billion barrels of oil, COP has the oil assets, upstream production and -- equally important -- downstream refining capacity to benefit from both oil's current high price and its likely, continued ascent, long-term.

Further, COP's 12 U.S. refineries represent the most compelling operations positive for the next 3-5 years ahead. In addition, COP has a $3 billion plan in place to expand the company's ability to refine heavy sour crude oils.

The refinery operation's significance: U.S. refinery capacity remains barely adequate, particularly for gasoline. The Reuters FY 2008/FY 2009 EPS consensus estimates for COP are $10.47 to $10.25.

The risks? Analysts are keeping an eye on COP's production levels. A sustained, large reduction in U.S. gasoline consumption would also hurt COP's results.

The First Call mean rating for COP is: Hold [17 firms]. Mean 2008 target: $83 [high: $112, low: $73.00].

Stock Analysis: ConocoPhilips is moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon of at least 2 years should benefit from COP's shares. Sell/Stop Loss if you were to purchase shares in this company: $63.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: ConocoPhilips, COP, gasoline, natural gas, oil, refineries