Should ConocoPhillips Be In Your Portfolio?

With shares of ConocoPhillips (NYSE:COP) trading around $58, is COP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

ConocoPhillips explores for, produces, transports, and markets crude oil, natural gas, natural gas liquids, liquefied natural gas and bitumen on a worldwide basis. The portfolio includes assets in North America, Europe, Asia and Australia; growing North American shale and oil sands businesses; a number of international development projects, and a global exploration program. Energy products and services are essential to global growth. Through its widely placed assets, ConocoPhillips is able to provide the energy products and services required by growing companies, economies, and populations.

T = Technicals on the Stock Chart are Mixed

ConocoPhillips stock has seen a significant surge in its stock price over the last several years. The stock is now consolidating near significant price levels, a solid break higher may see the stock heading towards all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, ConocoPhillips is trading around its key averages which signal neutral to bullish price action in the near-term.

COP

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of ConocoPhillips options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

ConocoPhillips Options

20%

66%

62%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on ConocoPhillips’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for ConocoPhillips look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-54.85%

-23.56%

-25.31%

8.61%

Revenue Growth (Y-O-Y)

2.55%

-9.64%

-14.15%

0.17%

Earnings Reaction

-5.05%

5.09%

-2.56%

-0.75%

ConocoPhillips has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have been dissatisfied with ConocoPhillips’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has ConocoPhillips stock done relative to its peers, BP (NYSE:BP), Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and sector?

ConocoPhillips

BP

Exxon Mobil

Chevron

Sector

Year-to-Date Return

0.64%

1.10%

3.57%

9.52%

8.39%

ConocoPhillips has been a relative underperformer, year-to-date.

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Conclusion

ConocoPhillips provides essential energy products to a diverse group of consumers and businesses participating in various industries around the world. The stock has seen a monster run in recent years and is now headed towards a bull and bear battle at significant price levels. Earnings and revenue figures have sent mixed signals to investors who have responded negatively to recent earnings announcements. Relative to its peers and sector, ConocoPhillips has trailed in year-to-date performance by a wide margin. WAIT AND SEE what ConocoPhillips does during this coming quarterly earnings announcement.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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