Oil stocks have long been a popular choice for investors looking to generate passive income, but the volatile nature of the energy sector can make them a risky proposition. However, with oil prices down around 9% in the last year, many oil and gas stocks have seen a sell-off, presenting an opportunity for savvy investors to capitalize on potential gains. One such stock that stands out in the industry is ConocoPhillips (COP), the largest U.S. exploration and production (E&P) company by market capitalization.
ConocoPhillips recently completed a $22.5 billion acquisition of Marathon Oil, which is expected to significantly boost the company’s production levels. With an anticipated increase in production of up to 18.8% by 2025, ConocoPhillips is focused on reducing costs and incrementally growing its business rather than aggressively pursuing new ventures. The company’s strategic approach to sustaining its newly expanded portfolio is aimed at maximizing efficiency and profitability in a challenging market environment.
Despite the acquisition, ConocoPhillips continues to invest in long-term projects, with a forecasted $12.9 billion in capital expenditures for 2025. These projects are designed to generate steady cash flow over an extended period, providing a stable foundation for the company’s future growth. While the increase in spending may raise some eyebrows, ConocoPhillips CEO Ryan Lance has outlined a clear strategy for maximizing returns on these investments and ensuring long-term profitability.
In terms of returning capital to shareholders, ConocoPhillips remains committed to delivering value through stock repurchases and dividends. With a projected $10 billion return to shareholders in 2025, the company aims to offset the shares issued for the Marathon acquisition and enhance shareholder value over time. By eliminating its variable return on cash and focusing on a consistent quarterly dividend, ConocoPhillips is positioning itself as a reliable source of passive income for investors.
From a valuation perspective, ConocoPhillips offers an attractive opportunity for investors, with a price-to-FCF ratio of 14.7 and a price-to-earnings ratio of 12.8. The stock is currently trading near a two-year low, presenting a potential buying opportunity for long-term investors. However, it’s important to note that E&P stocks like ConocoPhillips can be highly volatile and subject to fluctuations in oil prices, so investors should be prepared for potential swings in the stock price.
Overall, ConocoPhillips emerges as a top oil stock to consider for investors seeking a balance of growth potential and income generation. With a solid track record, a strategic approach to expansion, and a commitment to delivering value to shareholders, ConocoPhillips is well-positioned to weather the ups and downs of the energy market and provide long-term returns for investors willing to ride out the volatility.
