Standout earnings make China National Offshore Oil Corporation (NYSE: CEO) a strong buy right now after the Japan nuclear situation selloff and subsequent bounce northwards. CNOOC announced record-high profits for 2010, nicely beating analyst expectations.
Net profit soared 85% — making CEO stock the strongest performer in the sector — while revenue rose 74%. This represents earnings of about $18.00 per share — against last year’s earnings of $9.65 per share for China National Offshore Oil Corporation. No surprise that CNOOC stock had been climbing in anticipation of these strong earnings, up nearly 12% in the past week!
As I’ve discussed, CNOOC is my pick for the 10 Best Stocks for 2011 list here at InvestorPlace.com. And looking back over the past year, the company has successfully expanded its scope of business to South America and the Middle East region and made its debut in a shale oil and gas project in the U.S. These overseas developments are an important expansion for the company’s long-term development, and the company expects to continue these types of acquisitions in 2011.
The company’s overseas investment strategy has been largely unaffected by political unrest in the Middle East and Africa, though the company has certainly benefited from higher oil prices. And the company expects for global demand for oil and natural gas to climb following the nuclear crisis and earthquake in Japan.
For 2011, CNOOC is ramping up production to meet that demand, targeting 355 million to 365 million barrels of oil equivalent, up 8% to 11% from 328.8 million barrels in 2010. CEO stock execs expect oil and gas output growth of between 6% and 10% for the next five years.
Although China’s growth in oil demand is set to slow this year from 2010 levels, it should remain strong. In addition, although the pressure from inflation will be a challenge faced by the entire industry, the high oil prices should help the company offset the negative effects and the Chinese government seems to be responding appropriately to keep inflation under control.
Overall, the upswing in CNOOC performance is largely due to a combination of factors, many of which I’ve discussed here in previous updates for this stock pick. First, the company has a very solid balance sheet. The company invests in premium assets — and executes swiftly and strategically when making acquisitions.
Not to mention that the company has a unique position as the outward face and takeover arm of the Chinese government when looking to secure the country’s strategic energy resources, and the company is definitely succeeding. In fact, CNOOC’s 2010 reserve replacement ratio of 202% was the highest since 2003 — doubling its 100% target.
Looking forward, I expect CNOOC’s profits to continue their rise this year and I am positive on the long-term outlook of CEO.
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Robert Hsu is the editor of the China Strategy and Asia Edge newsletters. As of this writing, Robert was recommending CEO to his paid newsletter subscribers.