This week’s Blue Harbinger Weekly reviews three of our current holdings that present terrific buying opportunities right now. First, a diversified refining company that recently sold off thus creating an attractive opportunity to “buy low.” Second, a revenue-growing juggernaut that likely can’t be stopped for many years to come. And third, a smaller utility company that may soon be acquired.
Our diversified refiner stock (Phillips 66, PSX) looks even more attractive now than it did last week. It announced earnings on Friday and ended up down 6.7% for the week (SPY was down 1.3%). In our view, the decline has created an even more attractive entry point considering the company’s long-term prospects.
For example, the Sweeny Hub should be completed in the second half of this year. Also, the company is participating in the development of the Dakota Access Pipeline which should be compete in the fourth quarter. Additionally, PSX continues to invest in its Beaumont Terminal with 3.2 million barrels of new storage capacity under construction.
With regards to Friday’s earnings, low energy prices took a toll. On an adjusted basis earnings were 67 cents a share, compared to the 87 cents a share that analysts surveyed by Thomson Reuters had forecast. From a segment perspective, refining earnings were down 84%, chemicals were down 23%, marketing/specialties was down 33%, and midstream was down only 3%. The stock is essentially even with the S&P 500 this year, but we believe its long-term prospects are exceptional. You can read our additional PSX updates (including our original PSX thesis) here.
Facebook (FB) announced expectation-beating earnings last week, and the stock was up 6.3%. In our view, Facebook continues to be an absolutely enormous juggernaut of future earnings potential. It’s only just begun to unleash its potential for advertising revenues. We had the fortune of buying this stock several years ago at $27 per share (it’s now over $117), and we have no intention of selling anytime soon (we did sell some shares a couple years ago for rebalancing purposes…). You can read our previous Facebook updates and thesis here.
Our utility stock, Westar Energy (WR), gained another 3% last week, again outpacing the S&P 500. It’s up over 20% this year already, but it could experience some volatility over the coming weeks.
For starters, Westar announces earnings after the close on Tuesday. And considering the stock is already up so much this year, it will be pretty easy for the earnings announcement to “disappoint” and for the stock to decline.
Part of the reason Westar is up so much this year is because it has received buyout interest. According to Bloomberg, “Westar Energy Inc., the biggest electric utility in Kansas, has drawn takeover interest from rival Ameren Corp. as well as an investor consortium that includes Borealis Infrastructure Management Inc. and the Canada Pension Plan Investment Board.” Larger utilities companies are having a hard time finding growth, and they’re increasingly considering acquisitions of smaller utilities companies such as Westar.
Westar’s stock price currently reflects the chance that it could be acquired. And if it does get acquired it will likely increase in price, and if it doesn’t get acquired it will likely decrease in price. Regardless, we continue to believe in the company going forward, and for the time being we continue to hold. The dividend yield isn’t bad (~3%). You can read our previous Westar updates and thesis here.