T. Boone Pickens has been around a long time.
Born in 1928, the 85-year-old billionaire has amassed a
fortune byinvesting in the industry he knows best: oil and
He came from an oil and gas pedigree. His father worked as a
landman leasing oil andmineral rights in Oklahoma. Pickens' first
job out of college was with Phillips Petroleum. He later worked
as a wildcatter.
In 1956, he founded the company that would become Mesa
Petroleum and helped it grow into one of the largest independent
oil companies in the world.
During the 1980s, he became famous for hisacquisition of other
oil and gas companies, including Pioneer Petroleum and Gulf Oil.
His newfound notoriety landed him on the cover of Time Magazine
and prompted him to consider a presidential bid during the 1988
When it comes to investing in the U.S. oil and gas sector, one
would be hard pressed to find a more knowledgeable or experienced
person anywhere on the planet.
According to13F filings, Pickens opened five new positions in
oil and gas companies during thisyear 's first quarter.
Through hisinvestment firm, BPCapital Management, Pickens
opened positions in
Marathon Petroleum (
Gulfport Energy (Nasdaq: GPOR)
Phillips 66 (
As you might expect, thesestocks have all done well this year.
Gulfport has seen the biggestgains , up 28%. The onlylaggard of
the bunch is Apache, up "only" 8%.
So, considering the big gains we've already seen in this
sector, are any of these picks still a good investment at today's
While I strongly believe all five companies should remain on
investors' short list of stocks to watch, I think Phillips 66
offers the best value at today's prices.
Phillips' strength lies in thediversification of its assets.
Although it is known primarily as a refiner, the company also
owns interests in pipelines and chemical assets that help
boostearnings and provide stability, and help to differentiate
the company from its peers.
As part of a joint venture with
Spectra Energy (
, Phillips owns a 50% interest in
DCP Midstream Partners (DPM)
. DPM owns or operates 62 natural gas processing facilities and
12 NGL fractionation plants. And it services these facilities
through its massive, 62,000 mile natural gas pipeline system.
Regular StreetAuthority readers are probably already familiar
with our fondness for "irreplaceable" assets like pipelines.
These assets are very difficult to replicate, which discourages
competition and helps maximize profits. StreetAuthority expert
Elliott Gue has recommended a number of theseinvestments in his
Top 10 Stocks
newsletter. For example, subscribers who took his advice and
Brookfield Infrastructure (BIP)
are up more than 48% on the recommendation.
In addition to its position in DPM, Phillips holds other
midstream assets, including a 25% interest in the REX pipeline
and investments in fractionation plants.
Although Phillips has been publicly traded only since May
2012, it has already increased itsdividend twice. It currently
pays a rate of 31 cents a share, which comes out to ayield of
1.78% at today's prices.
The company's core refinery business also continues to churn
out profits. Phillips operates a total of 15 refineries, 11 of
which are in the U.S. It also operates one refinery in each of
Malaysia, Germany, the U.K. and Ireland. (In fact, the Whitegate
plant in Ireland is the only refiningfacility of its kind in that
The amount offree cash flow the company generates has grown
enormously over the past three years. During the past 12 months,
PSX reported almost $5 billion in free cash flow, a fivefold
increase over the $946 million reported in 2010.
Free cash flow is an important metric to consider because it
indicates that a company hascash to expand, develop new products,
buy backstock and pay dividends. Rising free cash flow is a good
indicator of a healthy, thriving company.
In taking a closer look at current shareholders, I also
discovered that T. Boone Pickens is not alone in his fondness for
PSX.Warren Buffett 's
Berkshire Hathaway (NYSE: BRK-B)
owns over 27 millionshares of the company -- an investment of
more than $1.9 billion.
As they say -- great minds think alike.
Risks to Consider:
In December, PSX announced it would form amaster limited
partnership (MLP) sometime in the second half of this year.
Transportation and terminal assets typically do well as MLPs,
and some of these assets are likely to be the foundation for
Phillips' new entity. However, if PSX decides toconsolidate all
or some of its pipeline assets into an MLP, it could damage
diversification and reduce one of the company's key
Action to Take -->
PSX is currently trading at a forwardprice-to-earnings ratio of
7.4 and a price-to-book ratio of 1.8, both of which are slightly
lower than the industry average. The stock rates a buy below $60