Warren Buffett has hiked his stake in Phillips 66 (NYSE:PSX) stock to more than 13% in January, up from about 10% last August.
Over three days late last month, Buffett’s conglomerate Berkshire Hathaway Inc. (NYSE:BRK.A) bought another 2.5 million shares of the independent refinery giant for $200 million. The total purchase was just over $800 million in the month.
Shares of the Houston, Texas-based Phillips 66 hit a three-month low of $75.25 in early January, down from PSX stock’s 52-week high of $94.12 touched in early November.
Berkshire revealed its purchases on January 29, just hours after Phillips 66 posted a 43% decline in profit and a 38% slump in revenue, pressured by weak commodity prices. Oil prices have declined more than 70% since mid-2014.
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However, the results topped analysts’ estimates. Adjusted earnings were $1.31 per share, far above analysts’ estimate of $1.25 per share. (Source: “Phillips 66 Gains Pre-Market After Q4 Earnings Beat Street View,” WallStreet.org, January 29, 2016.)
But why Phillips 66? Because refiners like Phillips 66 are one segment of the oil industry that actually benefits from lower oil prices—the process of refining oil into gas is made cheaper when crude prices are lower. And strong demand for gasoline doesn’t hurt refiners, either. (Source: “Warren Buffett’s Berkshire Hathaway can’t stop buying shares of this big oil refiner,” MarketWatch, February 1, 2016.)
Further, Phillips 66 is cheap at its current price of less than $80.00 a share. PSX stock had a price/earnings (P/E) ratio of 9.3 times (x) as of Monday, compared with a 20.5x P/E ratio for the S&P 500.
“We’re not buying it as a refiner and we’re certainly not buying it as an integrated oil company,” Buffett told CNBC last September. “We’re buying it because we like the company and we like the management very much.” (Source: “Warren Buffett talks Phillips 66 stake,” CNBC, February 1, 2016.)
Warren Buffett is perhaps the most idolized investor of all time, Michael Fowlkes of NASDAQ.com writes, “Whenever the ‘Oracle of Omaha’ speaks, everyone listens.” (Source: “Warren Buffett sees potential in energy sector,” NASDAQ web site, February 1, 2016.)