Diamond Hill Capital’s Top 10 Stock Picks

3. ConocoPhillips (NYSE:COP)

Value of Diamond Hill Capital’s 13F Position (9/30/2024): $717 million

Number of Hedge Fund Shareholders (9/30/2024): 67

Shares of ConocoPhillips (NYSE:COP) dipped by 8% during Q3, which prompted Diamond Hill to add to its COP position during the quarter, raising its stake by 20% to 6.81 million shares. Ken Fisher’s Fisher Asset Management as well as Vince Maddi and Shawn Brennan’s SIR Capital Management were among the other funds to significantly boost their stakes in Conoco during the quarter, by 60% and 120% respectively.

Hedge funds and analysts alike are exceedingly bullish on ConocoPhillips (NYSE:COP)’s $22.5 billion acquisition of Marathon Oil, which was completed in November. The company expects to achieve more than $1 billion in cost and capital synergies in the first year and plans to pass the bulk of those gains on to shareholders through share repurchases and dividend hikes.

ConocoPhillips is a ‘Top Stock to Watch’ at Jefferies, which has a ‘Buy’ rating and $146 target on COP shares. The firm likes Conoco’s strong balance sheet and believes the market is misjudging the company’s ability to generate a strong and sustainable free cash flow yield. Morgan Stanley likewise notes that while Conoco’s free cash flow slightly trails peers, its growth prospects are also stronger. The firm has a $128 price target and ‘Overweight’ rating on the stock.

The Invesco Growth and Income Fund is bullish on ConocoPhillips (NYSE:COP)’s May acquisition of Marathon Oil as the fund shared in its Q2 2024 investor letter:

“Stock selection in the industrials and health care sectors detracted from relative performance during the quarter. Selection and an underweight in consumer staples also hurt relative return as the sector was one of just two index sectors with a positive return for the quarter. ConocoPhillips (NYSE:COP): The company announced its acquisition of Marathon Oil in May. The deal is expected to increase earnings and will increase the scale of Conoco’s production assets. However, the stock traded lower on the news.”