Credit: Shutterstock photoT. 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 gas.
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.
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 elections.
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 Apache ( APA ) , Tesoro ( TSO ) , Marathon Petroleum ( MPC ) , Gulfport Energy (Nasdaq: GPOR) and Phillips 66 ( PSX ) .
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 prices?
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 ( SE ) , 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 bought 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 country.)
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 advantages.
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 per share.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
