Better Buy: Phillips 66 or Valero Energy

If you are looking for exposure in the refining sector, Phillips 66 (NYSE: PSX) and Valero Energy (NYSE: VLO) are among the stocks that first come to the mind. Both are top refiners with some of the best assets and healthy dividend yields. Both companies also look set to benefit from the new fuel standard from the International Maritime Organization that came into effect from January 1. However, it is important to know some key differences between the two before selecting one over the other.

The first key difference between Phillips 66 and Valero Energy lies in the two companies' operations. While Valero Energy is largely into refining, Phillips 66 is slightly more diversified in comparison. A significant chunk of Phillips 66's earnings come from its midstream, chemicals, and marketing businesses. Though Valero too has some midstream assets, they contribute much less to the company's earnings.

This diversification gives Phillips 66 a slight advantage in terms of earnings growth, especially when the refining market environment is weak. However, investors looking solely for a refining exposure may like to consider how it fits in their portfolio.

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Source Fool.com