Is ConocoPhillips Stock in the M&A Hot Seat?

This energy big boy is in prime position for an offer

ConocoPhillips (NYSE:COP) is a big energy exploration and production (E&P) player around the world. This is also referred to as the upstream part of the oil business. And right now, things look good for upstream stocks like COP stock.

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Midstream players are the pipeline and distribution companies. Downstream players are the refiners, wholesalers and retailers. The big integrated oil companies do it all — from upstream to downstream. Other firms work their niche.

The upstream players generally have the biggest risk-reward ratio since they are very price sensitive to the price of oil and natural gas, and they have to risk getting the balance right between exploring for more opportunities and producing from active wells.

So far, 2019 looks very bullish for energy prices from an energy company perspective.

COP as an Upstream M&A Target

It’s also easily witnessed in the battle that has begun for E&P Anadarko Petroleum (NYSE: APC) by fellow E&P player Occidental Petroleum Corp (NYSE: OXY) and integrated oil firm Chevron Corp (NYSE: CVX). OXY boosted its offer for APC 20% higher than CVX’s current bid.

COP is the biggest global E&P player at this point, according to GuruFocus.com. If OXY and APC merged that would strip COP stock of that title.

On the other hand, CVX is the second largest integrated oil and adding APC would bolster its position in the upstream oil sector.

Regardless how this plays out, the point is, big energy companies are looking to consolidate the industry and have the money to do it. And given the amount that this battle is going to cost the winner, it’s likely the loser may want to turn its sights to COP next.

At this point, COP is producing from its current sites around the world, having just recently sold 2 properties in the UK for $2.7 billion. It doesn’t expect to amp up production in the near term, but is strengthening its current portfolio and using some of the proceeds to fund its stock buyback program. This may prove to be a smart move if prices drop as quickly as they have risen, or if the dollar loses strength.

You see, since oil is priced in dollars, a strong dollar boosts oil prices, and vice versa.

However, if the rally keeps its legs under it, COP could miss out on the opportunity to sell more oil and gas into a rising market, boosting earnings and expanding margins.

This is part of the risk of being in the E&P sector. But bear in mind, COP has been around long enough to see this game played out before. And in 2002, Conoco merged with Phillips Petroleum to build this firm, selling off its downstream assets in 2012.

COP is in a great position regardless if there’s a merger in its future or if it continues to operate under its own steam. And that’s why my Portfolio Grader gives COP stock a B rating.

It’s a rock solid upstream choice that may seem some increased interest in the near future. But even if it keeps chugging along, it’s a reliable energy pick in a growing global economy.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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