“Phillips 66 is certainly one of the most undervalued names in the energy complex with a significant amount of upside,” said Dan Genter on CNBC’s “The Exchange”.
The president, CEO, and chief investment officer of RNC Genter Capital Management sees The Phillips 66 Company (NYSE: PSX) as a “way to play on the energy side”.
Reasons why Genter sees upside potential in Phillips 66
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Phillips generates roughly 66% of its total revenue from upstream (refining and storage). The American multinational that Raymond James also rates at ‘buy’ is scheduled to report its Q2 financial results in the first week of August.
In his interview with CNBC, Genter pointed out that Phillips is still down close to 20% in the stock market versus the overall demand for energy that, compared to the pre-pandemic levels, is down only about 10%.
Other reasons why he sees upside in the energy company include its price to earnings ratio that currently stands at about 12 but with a 4.4% yield. “The stock is undervalued with a lot of certainty,” he added.
Genter’s second pick – Altria Group Inc
The other undervalued stock with the potential for significant upside that Genter picked on “The Exchange” is Altria Group Inc (NYSE: MO) – one of the world’s largest producers and marketers of tobacco, cigarette and related products. The Richmond-based company have recently diversified and now generates 10% to 15% of its income from the beer and wines business.
“It’s trading at a 10 PE; it has 10% free cash flow, and it’s currently paying a 7.3% dividend yield. You’re going to get a 7% return with a 30% premium of free cash flow over that,” Genter said.
On a year-to-date basis, the $88 billion company is up close to 20% in the stock market. Shares of the company have recovered roughly 40% since March 2020, when the pandemic-related restrictions were at their peak.
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