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Why Phillips 66 (PSX) Stock is a Compelling Investment Case

Black Bear Value Partners recently released its Q3 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -22.3% (net) in the first nine months of 2020, underperforming its benchmark, the S&P 500 Index which returned 5.6% in the same period. You should check out Black Bear Value Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Black Bear Value Partners highlighted a few stocks and Phillips 66 (NYSE:PSX) is one of them. Phillips 66 (NYSE:PSX) is a downstream energy company. Year-to-date, Phillips 66 (NYSE:PSX) stock lost 54.0% and on October 13th it had a closing price of $51.27. Here is what Black Bear Value Partners said:

“PSX has been a top 5 position in years past. Its long-term value is similar to when we last owned it but is down 50+% in price in sympathy with broader energy concerns.

PSX is an integrated energy company with 4 central divisions: refining, chemicals, midstream (pipelines etc.) and marketing (gas stations). Due to downstream demand destruction, the refining businesses is taking it on the chin. This could persist for the remainder of 2020 and into 2021. As in years past, a lot of focus is given to the refining business as it has historically been the lion’s share of the value for PSX. Management has invested in the non-refining businesses who now make up most of the value of the company.

Management is extremely thoughtful with capital allocation and has focused on a healthy balance sheet with opportunistic share repurchases. They do not spend capex on projects unless they meet a healthy margin of safety for returns.

PSX should be able to generate substantial amounts of cash in the coming years and generate a 15+% free cash flow yield on quarter-end pricing. If the stock remains low management will be buying in a lot of stock.”

stockphoto mania/Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on Phillips 66 (NYSE:PSX) stock decreased by about 2% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with PSX’s growth potential. Our calculations showed that Phillips 66 (NYSE:PSX) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.