Is ConocoPhillips (COP) a Buy for Long-Term Energy Investors? A Deep Dive into Strategic Value and Undervaluation

ConocoPhillips (COP), a cornerstone of the global energy sector, has long been a focal point for investors seeking exposure to the cyclical yet resilient oil and gas industry. As the world navigates a transition toward cleaner energy while still relying heavily on hydrocarbons, COP's strategic positioning-marked by disciplined capital allocation, low-cost resource expansion, and a compelling intrinsic valuation-raises critical questions for long-term investors. This analysis evaluates whether COP represents a compelling buy, balancing its strengths against risks tied to oil price volatility and regulatory headwinds.

Five-Year Outperformance Amid Mixed Short-Term Results

ConocoPhillips has demonstrated resilience over the past five years, outperforming both the S&P 500 and its peers in the broader energy sector. From 2020 to 2025, COP's stock surged 147.4%, significantly outpacing the median performance of its oil and gas exploration and production (E&P) peers. This outperformance aligns with the company's focus on low-cost, high-margin projects, particularly in the Permian Basin, which has historically offered superior returns compared to global peers.

However, recent volatility has tempered this narrative. Over the past 12 months, COP's shares have declined 17.05%, underperforming the S&P 500's 13.19% gain and lagging behind the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which fell 9.2% over the same period. This short-term underperformance reflects broader market concerns about energy demand moderation and oil price fluctuations, which disproportionately impact upstream producers like COP.

Disciplined Capital Allocation and Low-Cost Expansion

A key driver of COP's long-term appeal is its disciplined capital allocation strategy. For 2025, the company has projected capital expenditures between $12.3 billion and $12.6 billion-a 10% reduction from 2024 levels-emphasizing cost control and operational efficiency. This approach is critical for sustaining shareholder returns while navigating a challenging macroeconomic environment.

COP's focus on low-cost resource expansion further strengthens its strategic value. The company has prioritized high-return projects such as the Willow oil project in Alaska and its liquefied natural gas (LNG) business, which offer long-term cash flow visibility. Additionally, COP has identified $1 billion in cost reduction opportunities and plans to divest $5 billion in non-core assets by 2026, streamlining operations and reducing capital intensity. These moves underscore a commitment to capital discipline, a trait that historically correlates with superior shareholder returns in the energy sector.

Intrinsic Valuation Suggests 20%+ Upside Potential

Analysts further reinforce this view. The mean price target of $112.88, supported by a "Strong Buy" consensus rating, aligns with these valuation metrics. Additionally, COP's projected free cash flow growth-from $7.88 billion in 2023 to over $13.05 billion by 2035-highlights its potential to generate robust returns for long-term investors.

Regulatory headwinds also pose a challenge. Stricter environmental policies and carbon pricing mechanisms could increase operational costs, particularly for legacy projects. COP's long-cycle projects, such as LNG developments, further amplify this risk, as they require extended periods to achieve profitability and are sensitive to shifting policy landscapes.

Conclusion: A Strategic Buy for Patient Investors

For long-term energy investors, ConocoPhillips presents a nuanced opportunity. Its five-year outperformance, disciplined capital allocation, and low-cost resource expansion position it as a resilient player in a cyclical sector.