Conoco, When An Upgrade Isn't An Upgrade (COP, GS, BRK-A)

ConocoPhillips Corporation (NYSE:COP) got a mixed blessing from Goldman Sachs Group Inc. (NYSE:GS) this morning. The bank raised its rating on Conoco from ‘Neutral’ to ‘Buy’ based on Conoco’s valuation.  That’s on the one hand. On the other hand, Goldman lowered the company’s target price from $50 to $47.

What Goldman appears to be saying is that Conoco is an oil company, but Conoco is not a strong oil company.  It may sound like a joke, but the company’s recent data shows this to not be too far off.  And its stock performance to peers leaves much to be desired.

The lack of strength is no doubt partially due to Conoco’s dismal performance in Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK-A). Buffett admitted he made a mistake with his investment in Conoco.  We’ve put Conoco among our list of stocks that will double by the end of 2010. The average Wall Street target is still just over a $50.00, and our double would take it to around $68.00.  So shares have to be bolstered by crude for that come about.  The Goldman Sachs note this morning outlines some of the inherent issues in the oil patch.  Some are good.  Some aren’t.

Conoco shares are off a little more than 1% in early trading this morning.

Paul Ausick
March 27, 2009