Warren Buffett (Trades, Portfolio) purchased 1,019,974 shares of Phillips 66 (PSX, Financial) for $77.21 per share on Sept. 14. With this transaction, the CEO of Berkshire Hathaway Inc. (BRK.A, Financial) (BRK.B, Financial) owns 80,671,982 shares of the oil refining company.
The 'Oracle of Omaha'
Buffett, the most respected and successful investor in history, studied at Columbia University under the legendary Benjamin Graham. Unlike his mentor, who searched for bargain stocks based on net-net working capital, Buffett only invests in stocks that meet his four-criterion investing approach: an understandable business with favorable long-term aspects operated by competent management and trading at attractive prices. This approach forms the basis of the Buffett-Munger Screener, one of GuruFocus’ most popular value screeners.
Oil refining company shows good growth potential
With a financial strength rank of 6, Phillips 66 has a sustainable business operation. During the past three years, the downstream energy company had moderately strong Piotroski F-scores and Altman Z-scores. Phillips 66 currently has an F-score of 6, which is near its historical median. Even though the current Z-score is near a three-year low, the company seldom has faced financial distress.
Despite having a modest profitability rank of 5, Phillips 66 has above-average operating margins and net margins. Additionally, the company’s margins generally have increased since 2012, suggesting upside potential in the short term.
The management of Phillips 66 discussed likely reasons for the increasing margins in its recent quarterly report filing with the Securities and Exchange Commission. Among the company’s three segments, the Midstream segment had the highest increase in earnings during the second quarter. The company had a net income of $881 million for the first six months of 2016.
Stock price increases after insider buy
Phillips’ stock price rose 2.73% as of Sept. 15, outperforming the Energy Select Sector exchange-traded fund (XLE) by about 1%. The increase in stock price is primarily attributable to Buffett’s insider buy of 1 million shares in the company’s stock.
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Disclosure: The author has no position in any stock mentioned in this article.
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