This week, Berkshire Hathaway’s (NYSE:BRK.A) Warren Buffett turned 81. And his age certainly has not hindered his investment prowess.
Of course, last week he plunked down $5 billion on a preferred stock issue of Bank of America (NYSE:BAC). Since then, the stock price has surged. No doubt, this is the kind of birthday Warren likes.
But what about some gifts for us investors? Well, it is no secret that Buffett prefers global brands — with huge moats. The names that get lots of coverage include Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG) and Coca-Cola (NYSE:KO).
But what about a stock that might not get as much attention? Well, there is one that does look interesting: ConocoPhillips (NYSE:COP).
OK, the stock price has not necessarily had a standout performance. So far this year, the gain is only 2.44%. In fact, for the past five years, the average annual return was 3.73%.
Yet despite all this, the future does look promising for ConocoPhillips. In the latest quarter, earnings came to $3.4 billion, or $2.41 per share. Production was fairly strong, and the refinery business was at over 90% utilization. The company also made progress with cost cutting.
What to do with the profits? ConocoPhillips has been aggressively buying back its shares. The second quarter saw $3.1 billion in repurchases. Interestingly enough, since the start of its program in 2010, the company has bought roughly 9% of its outstanding shares.
The summer’s drop in crude prices certainly will have an adverse impact. However, investors have discounted for this. Besides, ConocoPhillips likely will benefit from its plans to spin off its refining and marketing business. This should allow for more focus and cost savings. For example, the exploration business can invest more resources in deepwater production opportunities, which should provide strong long-term returns.
ConocoPhillips also plans to pursue more divestitures of assets. The transactions could range from $5 billion to $10 billion, providing more resources for share buybacks.
Finally, ConocoPhillips has an attractive valuation, trading at eight times earnings. At the same time, the dividend is a juicy 4%. And in light of the company’s improved balance sheet, the payout should remain secure.
So all in all, ConocoPhillips has the kind of attributes that should provide Buffett with more happy birthdays to come. After all, he does hold 29.1 million shares.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.
