ConocoPhillips (NYSE: COP), a pure-play oil and natural gas producer, is scheduled to announce its fiscal third-quarter results on Thursday, November 2. We expect ConocoPhillips
COP
stock to trade lower post Q3 with both revenue and earnings missing market expectations marginally. Oil prices were surprisingly lower than expected at the beginning of this year. However, crude oil picked up on expectations of tighter supply ever since Saudi Arabia and Russia extended their voluntary output cuts of a combined 1.3 million barrels per day (bpd) to the end of the year 2023 – in order to support prices. Among the most significant risks to oil markets since Russia’s invasion of Ukraine last year is the latest geopolitical tension between Hamas and Israel. There have not yet been any impacts on oil flows due to the conflict, but there could be major repercussions if it escalates. If the U.S. steps up sanctions against Iran, this would likely further strain an already tight oil market. The growing tight supplies due to geopolitical uncertainty and the soaring demand from the reopening of China’s economy could likely bode well for energy prices by the end of 2023.
COP stock has seen extremely strong gains of 200% from levels of $40 in early January 2021 to current levels now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the increase in COP stock has been far from consistent. Returns for the stock were 80% in 2021, 63% in 2022, and 0% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 7% in 2023 – indicating that COP underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Energy sector including XOM, CVX
CVX
, and BP, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could COP face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
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