Apache Corporation (APA), Tesoro Corporation (TSO), Phillips 66 (PSX) & More: T. Boone Pickens Recently Bought These 5 Energy Stocks — Should You?

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In addition to its position in DCP Midstream Partners, LP (NYSE: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 its dividend twice. It currently pays a rate of 31 cents a share, which comes out to a yield 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 refining facility of its kind in that country.)

The amount of free 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 has cash to expand, develop new products, buy back stock 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 Inc. (NYSE:BRK.A) owns over 27 million shares 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 a master 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 to consolidate 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 forward price-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.

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This article was originally written by Chad Tracy and posted on StreetAuthority.

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