Phillips 66 (NYSE:PSX) is one of the original U.S. oil companies, tracing its roots back to 1875. Today, PSX stock is one of the best choices in the sector..
A History of PSX Stock
Part of PSX began as the Continental Oil and Transportation Co in 1875. That name later got shortened to Conoco.
In 1917, two brothers from Oklahoma founded the Phillips Petroleum Company. Both operated in two distinct sectors of the energy patch for decades. Conoco and Phillips were focused primarily on the midstream and downstream sectors of the oil markets.
That meant they used their expertise in transporting, refining and distributing oil and petrochemicals into the fast-growing western U.S. marketplace. By World War II, Phillips and Conoco had invented high-octane airplane fuel to help boost the performance of U.S. aircraft.
Fort today’s market conditions, this integrated oil giant is in the right place at the right time. PSX stock is a buy right now.
After the war, the Age of Plastics was beginning and these companies were on the vanguard of the move since most plastics are derived from petrochemicals. This was another boon for the companies. And in 1981, Conoco was purchased by DuPont (NYSE:DWDP) in the largest merger in U.S. history at the time. It was run as a wholly-owned subsidiary.
Phillips also had its share of suitors but rejected the offers. In 2002, Conoco and Phillips merged to become the No. 6 largest oil company in the world and No. 3 oil company in the US.
In 2012, PSX spun off its downstream — its retail operations and distribution — operations to focus on its pipelines and refinery operations. Its current divisions are Refining, Midstream, Chemicals, Marketing and Specialties.
This transition and its flexibility over the decades has kept PSX at the top of the pack for 143 years. And those qualities are what PSX stock such a good choice right now.
PSX Stock Is a Buy Right Now
Generally speaking, the midstream oil companies — basically the pipeline stocks — are the first to bounce back as the energy economy rebounds. Because their revenue isn’t based on the price of oil, but the volume that goes through its pipes, the higher the demand, the more money a refiner makes. It’s a good business in a healthy economy because it takes pricing volatility out of the equation a bit.
Also, as the economy improves and demand grows, refineries’ output grows in demand. As demand grows, so does pricing power in both these sectors.
What PSX stock also offers is its petrochemical division. This is an offshoot of the refining process. It basically takes the crude oil that comes in and as it refines that into gasoline uses the remaining chemicals to sell to other industries for use in their products.
Again, when the economy is contracting or flat, the chemicals business is usually uninspiring. But in the kind of market we see today, this sector is also benefiting from economic growth.
In the past 12 months, PSX stock is up more than 20%, which is very good for a stock with a $54 billion market cap. It means you’re getting market-beating growth with a blue chip energy company that also delivers a 2.8% dividend.
Two other things to remember are that Saudi Arabia is holding back production, which will keep oil prices high. And, oil prices have been sitting above $70 a barrel since mid-September, so current prices aren’t a fluke. We could well be seeing oil putting in a base here.
Second, PSX has been in the business almost longer than anyone. If anyone can take advantage of the oil markets long term, its PSX.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.