Take some profits on oil stocks (page 1 of 2)

US equities

The US No3 integrated oil company ConocoPhillips (COP, $54.31, CSFB: Outperform) announced that it has got the approval from the Australian authority for the development of a $1.5 billion natural gas development in the Timor Sea area and a liquefied natural gas plant on the northern Australian coast, including a pipeline linking the plant with the Bayu-Undan gas field.

The approval is a significant step for ConocoPhillips and Italy's ENI, its main partner for this development. The company schedules to start delivering liquefied natural gas (LNG) to Japan's Tokyo Electric and Tokyo Gas from January 2006. LNG is expected to see a strong demand growth over the next 4-5 years and the Bayu Undan field could therefore become a strong earnings driver for ConocoPhillips. The company stated that the field would yield 400 million barrels of condensate, a light crude, and liquefied petroleum gas, and 3.4 trillion cubic feet of natural gas.

Crude oil prices over the last week were quite volatile, ahead of the OPEC meeting last Wednesday. The market had anticipated a cut in OPEC production earlier, but the closer the meeting came the less certain such a cut became. Since the reason behind a reduction in quotas was to make room for the ramp up in Iraqi production, there was on the other hand no imminent action required, as we have to expect further delays in the reconstruction of the Iraqi oil industry.

The price for the barrel West Texas Intermediate peaked at USD 32.36 on the 11th of June and started eroding, as the market began to assess the OPEC decision not to reduce its quota. OPEC will meet again on the 31st of July and review its position according to the progress in Iraq. So far Iraq since the end of the war has exported a total of 9.5 million barrels of crude oil, which is far away from the daily pre war production of 2.5 million barrels.

We could see some more weakness in crude oil prices over the near term and we are recommend investors to take some profits in our recommended oil stocks ConocoPhillips and Exxon Mobil (XOM, $37.93, CSFB: Neutral)

3M Co. (MMM, $127.80, CSFB: Neutral) is asking the FDA for approval to market its drug Aldera as a therapy for superficial basal cell carcinoma, a common form of skin cancer, for which about 1 million cases are diagnosed in the US each year. 3M is trying to expand its range of healthcare products by extending the use of Aldera for different therapeutic areas and in developing compounds designed to stimulate the immune system.

The company is renowned for its Scotch-tape and Post-it note's, but its health division is its single largest business, generating $3.5 billion (3M total sales: $16 billion) in revenue with asthma inhalers and medical adhesives. 3M expects approval for the new application of Aldera in the middle of 2004. The company has not provided exact sales figures for each product, said revenue from Aldera exceeds $100 million. These figures would grow further. BUY.

Johnson Controls Inc. (JCI, $85.49, CSFB: Not rated) was awarded the contract to produce a voice activated hands-free system for using cellular phones in vehicles of DaimlerChrysler's US Chrysler unit. Johnson Controls will start the production of the device in early 2004. The system will be pre-installed by order and will cost USD 279.

Chrysler did not give any figures about the sales it expects form this system, which makes it hard to quantify the potential revenues for Johnson Controls. However it confirms Johnson Control's strong position in the automobile supplier business, especially in niche markets with strong growth potential.