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Shares of ConocoPhillips (COP 1.74%) experienced a decline on Tuesday after analysts from several banks indicated a decrease in their price forecasts for the company. This adjustment was primarily attributed to ongoing trade tensions and recent drops in oil prices. However, on Wednesday, the stock bounced back, increasing by a modest 2.3%, effectively recovering its previous day’s losses.
So, what triggered this recovery?
The primary driver appears to be an uptick in oil prices.
Shifting Oil and Gas Dynamics
According to insights from OilPrice.com, there was a 500,000-barrel increase in oil inventories last week, a trend that would generally suggest a potential downturn in oil prices due to basic supply and demand principles. Nevertheless, the U.S. Energy Information Administration reports a contrasting scenario: while crude oil supplies have indeed risen, the stocks of gasoline and middle distillates—covering products like diesel and kerosene—have decreased by approximately 2 million barrels each.
This mixed data has prompted investors to push oil prices higher on Wednesday. Reports indicated that WTI crude oil prices climbed by 2%, nearing $62.60 per barrel, while Brent Crude saw a nearly equivalent rise of 1.9%, hovering just below $66 per barrel.
Evaluating the Investment Potential of ConocoPhillips
From a logical standpoint, the increasing oil prices should benefit ConocoPhillips, as generally, rising oil prices lead to an uptick in oil stock valuations. However, caution may be warranted; investors should avoid getting overly enthusiastic about a temporary rise in oil prices or adjustments in Conoco’s stock value.
With a trailing P/E ratio of just 11.8, ConocoPhillips’ stock does not appear to be overpriced. However, the ongoing challenges posed by tariffs, along with the current trade war and analysts projecting a mere 4% annualized long-term earnings growth for the company, suggest that this stock might not be the best deal, even at its seemingly attractive price point.
Although ConocoPhillips does provide a decent dividend yield of 3.6%, its free cash flow has been underwhelming, reported at less than $8 billion—falling short of the $9.2 billion in net income noted by data from S&P Global Market Intelligence.
Taking all factors into account, it seems there are likely superior options available for energy investors compared to ConocoPhillips, such as the faster-growing and higher dividend-yielding ExxonMobil (XOM 1.49%).
Source
www.fool.com