Why You Should Buy ConocoPhillips (COP)

Chevron is also dealing with a problematic pending lawsuit. While the lawsuit will likely avoid costing Chevron the full $19 billion the suit is for, it adds a splinter of uncertainty in this stock’s side.

Chevron reported a 2.1% production drop in its most recent quarterly filing. However, this drop was mostly due to planned shutdowns and maintenance.

Exxon Mobil Corporation (NYSE:XOM) is also a fully integrated oil major. It is larger than both ConocoPhillips and Chevron (it actually is the largest company in the world by market cap).

Exxon Mobil Corporation (NYSE:XOM) has a robust balance sheet with a debt to equity ratio of 0.1. Its dividends payout ratio is only 23%. Exxon Mobil Corporation (NYSE:XOM) produces immense cash flows that are used to buy back massive amounts of stock (about $5 billion each quarter). These buybacks have been Exxon’s preferred method to reward shareholders. Because of this, Exxon’s dividend yield is “only” 2.65%.

So ExxonMobil is a dividend stalwart with a robust balance sheet. What is not to like? To be honest, not much. I recommend you find a spot for Exxon Mobil in your portfolio. But, when a company gets as big as Exxon, it becomes harder for it to grow. ExxonMobil is essentially a cash-flow machine at this point.

ConocoPhillips has more room to run than Exxon, as its restructuring will provide it with organic growth opportunities that may be a little harder for Exxon to come by. While ConocoPhillips is setting up to grow production and margin by 3%-5%, Exxon has run into a production hurdle.

ExxonMobil like Chevron, experienced a production decrease in its latest quarterly filing. Exxon had a 3.5% production decrease. Don’t worry, as Exxon is perhaps the king of oil majors and very stable. It just doesn’t excite when it comes to potential for growth.

The Bottom Line:

These oil companies represent perhaps the “best of the best” in oil. You really can’t go wrong investing in any of these 3 majors. However, I like ConocoPhillips the most over the next 5 years. Management’s strong track record, a company wide restructure, and commitment to shareholder returns, win me over to ConocoPhillips.

The article Why You Should Buy ConocoPhillips originally appeared on Fool.com and is written by Justin Pope.

Justin Pope owns shares of ConocoPhillips. The Motley Fool recommends Chevron. Justin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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