Peers
Hess Corp. (NYSE:HES) will exit its retail, energy marketing, and energy trading businesses following pressure from an activist investor to break up the company. The company is an operator of terminals and retail gasoline stations, most of which incorporate convenience stores on the East Coast of the U.S. The company also said it would buy back up to $4 billion of its stock and increase its annual dividend to $1 from $0.40 starting in July.
Hedge fund Elliott Management, the third-largest shareholder in the company with a stake of 4%, has asked the company, which is aiming at becoming a predominantly exploration and production company, to look at a spinoff of its U.S. onshore assets and the sale of its retail operations. Elliott also plans to nominate five directors on the board of directors at the next annual general meeting. Hess Corp. (NYSE:HES) has been trying to sell non-core assets and invest more than 90% of its capital into exploration and production. It is also pursuing monetization of its gathering and transportation assets in the Bakken shale field, which is expected in 2015. The company’s management has often been accused of not generating enough value for shareholders, and these moves should unlock some of the hidden values. I recommending buying shares of Hess Corp. (NYSE:HES).
Chevron Corporation (NYSE:CVX) has both upstream and downstream operations, which makes it more diversified than most oil companies that have been spinning off their downstream operations. Chevron Corporation (NYSE:CVX) has sensibly stayed with refineries, going against the trend and strong downstream results have provided a cushion for the downturn in upstream operations. In keeping with the diversification strategy, the company also conducts natural gas and alternative energy operations. This is important because investors see Chevron as an oil company when it is actually much more. As a result, the company is poised to be successful no matter which way the energy market develops. For example, if alternative energy becomes a major energy source in the future, then Chevron is positioned to become a frontrunner. It proposes to build a solar thermal demonstration project in Hawaii by 2014 in an effort to control spiraling costs. Also, Ukraine now wants to enter into a shale-gas production-sharing deal with Chevron to reduce its energy reliance on Russia. The company has strong operating margins, a sound balance sheet and good growth. It provides a nice dividend yield and is relatively cheap because it trades at 8 times earnings. It is also positioned for future growth no matter which way the energy market develops. I think investors should also consider buying Chevron Corporation (NYSE:CVX).
Conclusion
ConocoPhillip’s stock sells for roughly five times operating cash flow (OCF). This is a discount compared to other major oil companies, such as Exxon Mobil Corporation (NYSE:XOM), which sells for 7.5 times OCF, or Chevron Corporation (NYSE:CVX), sitting at 6.5 times OCF (though I still recommend buying Chevron). The company also pays a higher dividend than these two. Though revenues fell in 2012 because of the spinoff of Phillips 66 last year, revenues are expected to grow by about 10% in 2014. This makes ConocoPhillips (NYSE:COP) a stock worth buying.
The article ConocoPhillips: Buy, Sell or Hold? originally appeared on Fool.com and is written by Max Fisher.
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