PSX

Thinking Slow: 3 Research Blind Spots That Changed the Investment World

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Dear members: — Daniel Kahneman in his text Thinking, Fast and Slow (1) divided the human psyche into two systems. The first system is instinctive and emotional, often set on autopilot, while the second system is slower and more logical, requiring a calculating conscious. Many of the maxims the investment world takes for granted today suffer from conclusions that are made rapidly, almost without thinking, driven by our first system, creating what I call research blind spots. — In World War II, Allied bombing raids were suffering from very high casualty rates. It was estimated that for those pilots that were flying at the beginning of the war, only about 10% survived, a terrible loss rate. Bombing was crucial to the Allied … Read more

Phillips 66’s 2027 Strategic Priorities Look Achievable

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Image Source: Phillips 66 By Brian Nelson, CFA Phillips 66 (PSX) recently reported second quarter results that came in better than expected on both the top and bottom lines. The company reported adjusted earnings of $973 million or $2.38 per share, above the consensus forecast. Phillips 66 operated at 98% capacity utilization in Refining with 86% clean product yield. As for dealings, the firm completed its acquisition of EPIC NGL (Coastal Bend) and sold a 65% interest in its Germany and Austria retail marketing business. Excluding working capital, it generated $1.9 billion in net operating cash flow as it returned $906 million to shareholders through dividends and buybacks. Here’s what management had to say about the results: Phillips 66 delivered … Read more

3 Undervalued Stocks to Consider Buying Now

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Dear readers:   With the markets retracing most of their recent drawdown, we’re taking a victory lap as we didn’t panic, nor should have you. We highlighted our wait-and-see approach amidst the worst of the pullback, and we expect the Magnificent 7 (large cap growth and big cap tech) to continue to propel the markets higher, as they have done.   We’ve been busy rolling valuation models as we finetune our assumptions for a great number of companies under coverage. While doing so, we came across three undervalued stocks that are also included in the simulated newsletter portfolios. We think they’re prime for highlight.   The three stocks are UnitedHealth Group (UNH), Nvidia (NVDA) and Alphabet (GOOG). We spend a lot of time on discounted cash-flow valuation, … Read more

Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … Read more

Phillips 66 Outlines Strategic Priorities

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Image Source: TradingView By Brian Nelson, CFA Phillips 66 (PSX) reported fourth quarter results on January 31 with non-GAAP earnings per share coming in ahead of the consensus forecast. The company reported fourth-quarter earnings of $8 million, or $0.01 per share, and an adjusted loss of $61 million, or $0.15 per share. Earnings in the quarter were impacted by $230 million pre-tax of accelerated depreciation related to its Los Angeles Refinery. In the fourth quarter, it returned $1.1 billion to shareholders through dividends and share repurchases. Phillips 66 registered record NGL fractionation and LPG export volumes in Midstream and set a record clean product yield in Refining. Management had the following to say about the quarter and outlook: During the … Read more

Exxon Mobil’s Permian Assets Performing Well, Structural Cost Reductions on Track

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Image Source: Exxon Mobil By Brian Nelson, CFA Exxon Mobil (XOM) recently reported better than expected third quarter results, though performance faced some headwinds from lower industry refining margins and reduced natural gas prices. Total revenues and other income fell 0.8% in the quarter on a year-over-year basis, while earnings excluding identified items (non-GAAP) fell to $8.6 billion from $9.2 billion in the year-ago period. Diluted earnings per common share came in at $1.92 versus $2.25 in the same period a year ago. Management had the following to say about the quarter: We delivered one of our strongest third quarters in a decade. Our industry-leading results continue to demonstrate how our enterprise-wide transformation is improving the structural earnings power of … Read more

Phillips 66’s Dividend Well Covered with Free Cash Flow

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Image Source: Phillips 66 By Brian Nelson, CFA Phillips 66 (PSX) reported third quarter earnings October 29. Adjusted EBITDA came in at $2 billion, down from $2.18 billion in the year-ago period. Adjusted earnings were $859 million versus $984 million in the same period last year. Adjusted earnings per share came in at $2.04 versus $2.31 in last year’s quarter. Cash flow from operations was $1.13 billion versus $2.1 billion in the year-ago period. Capital expenditures and investments were $358 million, down from $367 million in the same period a year ago. During the quarter, the company bought back $800 million of stock and returned $477 million in dividends to shareholders. Phillips 66 ended the quarter with $1.6 billion in … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Phillips 66 Records Strong Free Cash Flow in Second Quarter

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Image Source: Phillips 66 Investor Update By Brian Nelson, CFA Phillips 66 (PSX) reported strong second quarter results July 30, with the firm generating second-quarter earnings of $1.0 billion or $2.38 per share. Adjusted earnings were $984 million or $2.31 per share. The company experienced record midstream NGL pipeline and fractional volumes and noted that synergy capture is driving lower costs. The company recorded strong refining operations with 98% crude utilization and 86% clean product yield. Management commented on the strong quarter: We are systematically executing on our strategic priorities, which is reflected in our second-quarter results. Refining crude utilization was our highest in five years and we lowered our costs by nearly a dollar per barrel, reflecting the success … Read more