Is CNOOC the Right Stock to Retire With?
Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. Let's figure out what makes a great retirement-oriented stock, then examine whether CNOOC (NYS: CEO) has what we're looking for.
The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.
Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.
When scrutinizing a stock, retirees should look for:
With those factors in mind, let's take a closer look at CNOOC.
Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
Size | Market cap > $10 billion | $97.1 billion | Pass |
Consistency | Revenue growth > 0% in at least four of five past years | 4 years | Pass |
Free cash flow growth > 0% in at least four of past five years | 3 years | Fail | |
Stock stability | Beta < 0.9 | 1.17 | Fail |
Worst loss in past five years no greater than 20% | (43.5%) | Fail | |
Valuation | Normalized P/E < 18 | 14.18 | Pass |
Dividends | Current yield > 2% | 2.9 % | Pass |
5-year dividend growth > 10% | 20.4% | Pass | |
Streak of dividend increases >= 10 years | 6 years | Fail | |
Payout ratio < 75% | 26.4% | Pass | |
Total score | 6 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
CNOOC posts a very reasonable score of 6. The state-owned Chinese oil giant has reached out to grab up assets around the world in order to build its position and gain valuable expertise to take back to its home country.
The strategic moves that CNOOC and some other big Chinese oil companies have made lately seem at first glance merely to continue a long-standing practice of acquiring natural resources across the globe. In January, CNOOC bought a 33% stake from Chesapeake Energy (NYS: CHK) in the U.S. company's oil and gas assets in the Eagle Ford and Niobrara shale areas. Although the company lost its bid on the Ghanaian Jubilee field, it continues to look aggressively for international opportunities, such as an investment in Brazilian oil company OGX.
But the real reason behind CNOOC's move may well be to gain a competitive advantage over CNOOC's peers. Rival PetroChina (NYS: PTR) , which followed up on CNOOC's Chesapeake deal by partnering up with Canada's EnCana (NYS: ECA) to develop a remote gas project in the Canadian Rockies, and China Petroleum and Chemical (NYS: SNP) are just a couple of CNOOC's peers that will bid on shale oil assets within China's borders. By teaming up with Chesapeake and others, CNOOC hopes to gain valuable experience and knowledge that will help it win those bids.
Retirees and other conservative investors can point to a strong and growing dividend as reason to grab the stock for their retirement portfolios. Always volatile energy markets remain a constant concern for shareholders, but with China's increasing hunger for energy, CNOOC should remain in a great position to capitalize for years to come.
Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.
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At the time thisarticle was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article. You can follow him on Twitterhere.Motley Fool newsletter serviceshave recommended buying shares of Chesapeake Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
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