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Posts from the ‘Phillips 66 (PSX)’ Category

Week 82: Lots of Flux

Portfolio Performance

week-82-Performance

Short Lived Niko Experience

I wrote about a new position in Niko in a short summary 3 weeks ago.  A couple weeks later I sold the stock.  What can I say – its part of my process.  A lot of times I only get clarity about a stock once I own it.  I buy a position, sit on it for a few days or a week, and do some more background and some more thinking on the name.  With that my opinion becomes more clear.

The discomfort I developed with Niko was partially the result of another batch of less than stellar drilling results, but mostly the result of my conclusion that this isn’t the right time yet.  The driver of the share price will be the settlement of a new gas price contract in India.  I don’t think this is likely to occur until the existing contract expires, which is not until next year.  In the mean time Niko will continue to experience production declines in India, and they are open to negative news flow on drilling.  Read more

Week 55: Skittish

Portfolio Performance

Portfolio Composition

Click here for last two weeks of trades.

Portfolio Summary

I have reluctantly added some risk over the last couple of weeks  My cash position is down to $27,839 from $35,893 two weeks ago, which is a drop to 23% of total assets in my tracking portfolio.

The stocks I have bought have been added because I believe they are cheap.  I think that there is a reasonable chance that they will be worth significantly more over time.  But I do not add them with complete conviction.

The problem remains Europe.  And I remain wary of when the next shoe will drop.    Until Friday, the market had forgotten about Europe for the time being, but we have seen this happen before, and always with the same ending. Europe comes back and again trumps all else.  With Spanish yields rising to a new high on Friday (7.267%)  I am already questioning whether I have made a mistake by purchasing rather than selling stock.  I have already considered an about face.

You can see just how skittish I am by looking at how many trades I am second guessing myself on.  Three times in the last two weeks I bought a position only to sell it later the same day.  These weren’t planned “trades”.  I don’t play the day-trade game.  These were cases where I took the position and couldn’t handle the weight of it, and decided to sell instead of worrying about whether I had made a mistake by buying.

I am typically not so wishy-washy.  That the market has me going through convulsions speaks volumes to the uncertainty that exists at the moment.

As for the stocks I bought, those that I kept that is, I am confident that I got them at a decent price which, in the absence of more macro-malaise, will lead to eventual profits.  More on the individual position updates in the post below:

Company Updates

Radian Group (RDN), MGIC (MTG), MBIA (MBI): here

Arcan Resources (ARN): here

Phillips 66 (PSX):  here

 

Week 55 Update: Phillips 66

I have actually owned Phillips 66 (PSX) for a while now, just not in the account I track online. Phillips 66 is a spin-off from Conoco Phillips.  The company has 3 lines of business:

  1. Refining
  2. Midstream
  3. Chemicals

I originally came across the idea of Phillips 66 after reading a Barrons article that was posted on the Investorvillage.com BRY board.  Phillips was a recommended pick of Meryl Witmer.  The thesis outlined by Witmer was as follows:

Phillips’ 50% of PCChem could earn $1.30 a share this year. These earnings deserve to be valued at a 10 multiple, or $13 a share. The midstream segment owns and operates natural-gas processing facilities and fractionation plants, and a large and valuable natural-gas pipeline system. It also owns 50% of a master limited partnership. It should have free cash flow of $1.20 to $1.30 a share and about a dollar in earnings once it finishes up a couple of projects. It is worth 17 times free cash flow, or more than $20 a share…

So at $35 you get the refining business for free.

My original purchase a few weeks ago was somewhat vindicated after Warren Buffett noted in a Bloomberg interview that his company had bought a large position recently.

The interesting thing about Phillips is that they stand to benefit from the increased liquids production in North America.  Below is an excerpt from the company’s CEO at the Citigroup Global Energy Conference:

If you think about natural gas at kind of $2 a day and ethane that was 30 cents and going down I think the last time I looked at it. But ethane at 30 cents is about $5 a million BTUs. So we capture the upgrade from the wellhead at $2 to 5 bucks through the midstream business and then the petchems really pick up at $5 and go to essentially the crude level, which is what the rest of the world competes on when they’re buying naphtha. Think about that at $17 to $18. And while we don’t know exactly where that rent is going to get captured through that chain, by the ownership in DCP and CPChem, we benefit all the way through that chain in the ownership in capturing that margin upgrade. So we really like that position that we have there.

The thing that makes Phillips interesting is that, as was implied by the Meryl Witmer analysis in Barrons, based on the valuation of the company, investors seem to be treating the company as a refiner, when really only a third of the company’s business is refining.   Moreover, as the company pointed out at another conference recently, this time put on by UBS, the other two-thirds of the business, midstream and chemicals, have return on capital metric north of 20%.

My only problem with Phillips is finding a price to buy in at.  I bought into it in other accounts at under $32.  It pains me now to buy at $35-$36.  Perhaps we will get a further pullback, though after the Buffett endorsement I kind of doubt it.