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Summary
After seeing the S&P 500 from its March lows, investors should book gains from recent winners and redeploy them in stocks that did not participate in the melt-up.
While the COVID-19 pandemic has disrupted Phillips 66’s operations in the short term, the firm’s available liquidity positions it to weather the downturn.
PSX now trades below its economic book value, or no-growth value, and at its cheapest levels since 2012.
Superior Profitability Helps Grow Market Share During the Crisis and in the Recovery
COVID-19 disruptions to the energy industry already have driven financially weaker operators out of business. Phillips 66’s profitability was superior to its competitors before the crisis, and the firm is well positioned to return to profit growth when the economy recovers.
Per Figure 2, Phillips 66’s net operating profit after-tax (NOPAT) margin improved from 3% in 2015 to 4% TTM. Over the same time, the market-cap-weighted average of Phillips 66’s peer group improved from 2% to 4%. This peer group consists of 17 integrated oil companies, marketers, and independent refiners including Exxon Mobil Corp (XOM), Chevron Corporation (CVX), BP, PLC (BP), Suncor Energy Inc (SU), Marathon Petroleum Corp (MPC), and Valero Energy Corp (VLO) among others[2].
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