Quick Value 12.16.19
Market Performance
S&P 500 | 3146 ==> 3169 | +0.7%
Dow Jones | 28015 ==> 28135 | +0.4%
Russell 2000 | 1634 ==> 1638 | +0.2%
Russell Microcap | 593 ==> 604 | +1.9%
10-Year | 1.80% ==> 1.83%
Gold | 1465 ==> 1481 | +1.1%
Oil | 59 ==> 60 | +1.7%
VIX | 14 ==> 13 | -7%
Market Stats
Adding to the whole “what’s going on with the relentless rise in the markets?” feeling:
Both the manufacturing PMI index
…AND the non-manufacturing PMI index:
…have been in a downward trend for quite some time now. The manufacturing index in particularity has moved below the 50 threshold (indicating contraction). While services look to be still in expansion mode (non-manufacturing PMI index), the rate of growth has slowed considerably of late.
Quick Value
Phillips 66 ($PSX)
Oil and gas hasn’t been kind to investors for years now. After their split with Conoco (which held onto oil exploration and production), Phillips 66 now consists of 4 main businesses:
Midstream - Pipelines and transporting oil and gas
Chemicals - Commodity chemicals used in plastics, packaging, etc. (think: $LYB)
Refining - Processing crude oil into gas, fuel, etc.
Marketing - Fancy word for gas stations and c-stores
$PSX checks a few simple boxes that make it interesting:
Cheap - At $113 per share this stock trades at less than 8x cash from operations of about $7bn per year.
Good balance sheet - Debt of $12bn is fairly low relative to the cash generated (1.7x cash flow).
Growth - A combination of recent growth projects coming online, regulatory changes, and declining capital investment should lead to increasing cash flow over the next few years.
Returning cash - Cash is coming back to shareholders in the way of dividends (3.1% yield and growing) and share repurchases.
Check out the 2019 investor day presentation for a more in-depth look:
That’s pretty much it. Simple story. Good businesses that even Warren Buffett has been buying. Generally less sensitive to oil and gas prices given their place in the value chain (i.e. delivery and processing).