Energy stocks Phillips 66 (NYSE: PSX) and Valero Energy (NYSE: VLO) have both seen significant gains this year, with PSX trading slightly higher in valuation compared to VLO. Valero, however, is more profitable. Both companies have seen strong revenue growth, with the increase attributed to higher crude oil prices and robust demand. Sales did decline in 2023 for both companies due to falling crude oil prices. Despite the uncertain macroeconomic environment, with high oil prices and elevated interest rates, both stocks are considered fully valued at this time.
Looking at stock returns, both PSX and VLO have seen substantial gains over the past three years, outperforming the S&P 500. However, consistently beating the market has been a challenge for individual stocks in recent years, including heavyweights in the Energy sector and megacap stars. The Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500 each year over the same period, providing better returns with less risk.
Phillips 66 has demonstrated better revenue growth compared to Valero, while Valero is more profitable and has a better financial position. Valero’s operating margin has improved significantly, while Phillips 66 has also seen growth but at a slower rate. Both companies are currently trading at higher valuation multiples compared to their historical averages, with positive factors such as the robust demand environment and tighter supplies for crude oil already priced in. Investors looking to enter the market may benefit from waiting for a dip in stock prices.
Overall, the net result is that both PSX and VLO appear fully valued at this time. It is important to consider how Phillips 66’s peers fare on important metrics and to compare companies across industries for a comprehensive analysis. Despite the challenges of consistently beating the S&P 500, investors can benefit from diversification and careful consideration of factors such as revenue growth, profitability, and financial risk. Ultimately, the decision to invest in energy stocks such as Phillips 66 and Valero Energy comes down to finding the best stocks that align with specific investment styles and objectives.
