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Here's Why ConocoPhillips (COP) is a Strong Sell Right Now

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On Jan 3, ConocoPhillips (COP - Free Report) was downgraded to a Zacks Rank #5 (Strong Sell).

Reasons for the Downgrade

Over the past 30 days, the Zacks Consensus Estimate for fourth-quarter 2018 earnings has been revised downward to $1.11 per share from $1.32. The Zacks Consensus Estimate for 2018 earnings has also moved down to $4.53 per share from $4.75 over the same time frame.

The recent negative revisions have primarily been attributed to the prevailing weak oil pricing scenario. After crossing the $75-a-barrel psychological mark in October 2018, West Texas Intermediate (WTI) crude fell below $45 in December 2018. WTI is currently trading a little below $48 and the commodity price is unlikely to recover before mid-2019 when the supply of Iranian oil in the global economy will fall drastically. The radical decline will be resulting from the expiry of U.S. sanction waivers, which allow several countries to continue to import oil from Iran till mid-2019.

Since liquids contribute to more than 63% of ConocoPhillips’ production, the unfavorable oil pricing scenario will continue to affect the company’s upstream operations in the near term.

Importantly, the free fall in oil price in the last two months of 2018 has also dragged down the stock as reflected in the pricing chart. In the last three months, ConocoPhillips plummeted 20.7%, following the industry’s 27.5% decline. Investors should also know that the negative oil outlook is expected to lower the company’s 2019 earnings by 5.1% from the year-ago period.

Stocks to Consider

Prospective players in the energy space that are worth considering are Unit Corporation (UNT - Free Report) , Bonanza Creek Energy, Inc. (BCEI - Free Report) and TC PipeLines, LP (TCP - Free Report) . While TC PipeLines carries a Zacks Rank #2 (Buy), Bonanza and Unit sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.    

TC PipeLines beat the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 15.6%.

Bonanza will likely post earnings growth of 57.3% through 2019.

Unit Corp surpassed the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 21.3%.

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