Phillips 66 (PSX)

Warren Buffett has been picking away at this. It is very difficult to build a refinery. There is a limited number of competitors, so they are well situated. The drawback is that you are beholden to crack spreads, basically the value of all the different components of a barrel of oil after it has been refined. In the past couple of years, it has been a very, very good business, but it is a cyclical business. The ways the composition of crude oil is coming to refineries is changing. He would prefer going to where the greatest value is, which is going to be the crude producers.

(A Top Pick Sept 26/15. Up 2.91%.) This is a refiner, and they participate in oil strength. It is the kind of company that is not up as strong when oil prices go up, but also has not been down as much when prices are down. Has a very good franchise.

They are the biggest independent refiner. They are doing some internal restricting to get down to only 30 percent refining. It’s a good opportunity to buy for the longer term.

A fantastic break out at $82. This is exactly the kind of stock you want to own.

Chart shows a long uptrend from October followed by a short term reversal. Be careful.

The base built in summer and fall of this year is classic. It followed through and is in a nice uptrend. You would stay with it as long as it is going up.

Once again, differentials have widened. There’s been a turnaround in the refineries in the Gulf Coast, so they shut down, which causes a lot of oil to show up in inventories. A good time to play refineries on the East Coast because they can buy very discounted crude from the Bakken and make a really big profit. This is a very volatile stock and not to be owned for the long run. Over the next 12 months differentials will probably narrow because of 2 pipelines that are going to come on in the next 12 months and bring oil down to the Gulf Coast. Be careful.

This has been on an unbelievable tear. US energy stocks have done way better than Canadian producers. Everybody’s worried about the heavy oil differentials and the Keystone. Maybe it’s time to switch to a Canadian.

Refining assets which have done really well of late. Also, have a midstream piece which is potentially undervalued. This is one that probably has a modest amount of upside.