August 29, 2022, Westlake Corporation (NYSE: WLK) and Phillips 66 (NYSE: PSX)
With energy costs soaring in the U.K. and Europe and chemicals in constant global demand, these two companies are the best stocks to buy now.
Investors were not blasting Ice Cube’s “Today Was a Good Day” on Friday (August 26, 2022). After eagerly anticipating Fed Chair Jay Powell’s testimony at Jackson Hole all week, the market tanked. The Fed “must keep at it until the job is done,” he said on fighting inflation, as he warned of another “unusually large increase” in interest rates. The Dow fell over 1000 points (~3%), the S&P 500 fell 3.4% and saw its worst weekly decline since mid-June, and the Nasdaq dropped nearly 4%. Underneath the surface, though, the best stocks to buy now could be chemical company Westlake Corporation (NYSE: WLK) and prominent oil, gas & consumable fuels player Phillips 66 (NYSE: PSX), thanks to mounting global catalysts.
The energy crisis in the U.K. and Europe is only worsening. While prices at the pump may have cooled, we’re on the cusp of a disaster in the winter. In the U.K., energy costs could soar 80% starting in October. U.K. homes will also pay 178% more for heat this winter. Europe’s benchmark power price also exceeded 1,000 euros for the first time.
Natural gas prices in the U.S. also recently hit a 14-year high and may offset any declines in gasoline costs.
While not directly involved in energy and gas, Westlake Corporation’s product lines are full of essential materials for day-to-day life. With plastics and chemicals like chlorine under its belt, Westlake is in consistent demand no matter what. Phillips 66 is more a direct play on rising natural gas costs, especially considering it’s both an upstream and downstream operator.
Both look like the best stocks to buy now because of the above catalysts, rising earnings, incredible value, excellent fundamentals, and analyst upside.
Westlake Corporation (NYSE:WLK)
Quietly essential for our day-to-day lives, this prominent chemicals institution offers deep value and a potential 26+% upside.
Westlake is one of the most critical chemical companies in the world and has a footprint with offices and production facilities in North America, Europe, and East Asia. It supplies 40 billion pounds a year worth of essential everyday products such as medical-grade plastics, chlorine, and building products.
Although the stock’s gained over 20% since July 14, 2022’s lows, one of the reasons it’s one of the best stocks to buy now is its consistent value. It remains at an attractive buy point over 24% below 2022’s highs. It also trades with mouth-watering multiples like the following, suggesting that despite its catalysts and rock-solid fundamentals, it offers deep value.
However, this only scratches the surface. Westlake has a lot more working in its favor.
Consistently Growing Earnings and Revenue
About four weeks ago (August 2, 2022), Westlake reported Q2 earnings and revenues that beat estimates. Moreover, figures continued a trend of consistently exceeding expectations and growing quarter-over-quarter.
EPS, first, came in at $6.60, beating consensus estimates by 4.27%. This figure also marked a 63.37% year-over-year improvement.
Additionally, Westlake’s revenue came in at $448 million, beating forecasts by 4.38% and marking a 39% year-over-year increase.
Many projections believe that Westlake can continue this pace. Finbox sees revenue increasing at an 18.3% 5-year CAGR and net income growing 41.5%.
Outstanding Cash Flows, Fundamentals, and Dividends
We already mentioned why the WLK’s deep value makes it one of the best stocks to buy now. However, the story becomes even more enticing when realizing cash flows can sufficiently cover interest payments, and its valuation implies a robust free cash flow yield of 15.9%.
Moreover, Westlake’s strong cash flows enabled Westlake to hike share repurchase authorizations by $500 million in Q2 and to bump its already sterling dividend by 20%.
The recent dividend increase is probably a great place to continue. Westlake is an outstanding dividend payer, no matter how you look. Its 1.34% dividend yield is solid, but its dividend growth track record is why investors should love this stock. Forget about the recent 20% dividend bump. Westlake has increased its dividend for 19 straight years and at a 7.25% CAGR over the last 3 years. Its current and projected payout ratios also sit below 7% and show that future explosive dividend growth is on the menu. Perhaps even by 32.2% and at a 9.3% 5-year CAGR.
Its case as one of the best stocks to buy now looks even stronger based on the following margins:
JP Morgan’s Especially Bullish and Sees a 26+% Upside
According to TipRanks, 12 Wall Street analysts offereD 12-month price targets for Westlake in the last 3 months. The stock currently has a high price target of $170.00, a low of $92.00, and an average of $126.75. The average price target represents an 18.49% upside from August 26, 2022’s $106.97 close.
JPMorgan analyst Jeffrey Zekauskas notably days ago (August 17, 2022) gave Westlake an OVERWEIGHT rating and $135 price target, representing a 26.2% upside.
WLK’s year-to-date low and high are $89.00 and $141.19, respectively.
Phillips 66 (NYSE: PSX)
A prominent midstream and downstream operator staring at a 24+% upside thanks to a global energy crisis.
Phillips 66 is a prominent player in the oil, gas & consumable fuels industry and has all the catalysts working in its favor. As a midstream and downstream operator, PSX has unique positioning leveraged to surging energy costs from all angles. Are prices at the pump dropping? No problem. Just wait for the imminent global heating crisis once the weather starts cooling down in a few months.
PSX strategically generates revenue from the transportation of oil and liquid natural gas and the manufacture of petrochemicals and plastics. So whoever is begging for more supplies will certainly give PSX a call from wherever they are in the world.
Although the PSX stock is off -17.16% from its highs earlier in the year, there are apparent catalysts that could push the PSX stock back to its highs from early June if the global energy crisis plays out how we think it will. It is already charging back, rallying over 21% since July 14, 2022.
PSX, though, isn’t only one of the best stocks to buy now because of global catalysts that have put it on this recent run that could continue running. It’s a well-run company that remains at an attractive valuation. It also has surging earnings, strong fundamentals, a consistent dividend, and mouth-watering analyst upside.
Surging Demand Could Keep Its Triple-Digit Earnings Growth Elevated
Demand for refined products such as gasoline, diesel, and jet fuel should remain high. But Russia’s thuggish blackmail tactics over Europe’s natural gas supply as winter approaches could cause natural gas demand to surge uncontrollably.
Judging by Phillips 66 latest earnings report from July 29, 2022, and subsequent projections, the Company’s growth may be shockingly nowhere near its peak.
On the bottom line, PSX reported $6.77 EPS, crushing consensus analyst estimates of $5.92 by $0.85 and marking a shocking 814.86% year-over-year increase. Revenue also came in at $49.31 billion for the quarter, beating analyst forecasts by just a hair under $10 billion and marking a 76.8% year-over-year increase.
We’re not the only ones, though, who see this as just the start. Finbox data projects the Company to see revenue grow at a 5-year CAGR of 9.5 and net income to increase by an astounding 449.1% at an 83.2% average over the next five fiscal years.
Deep Value With Strong Financials and Dividends Make the PSX Buy Case Undeniable
Despite the stock’s recent recovery and earnings growth that looks too good to be true, PSX remains 17+% below its 2022 highs and remarkably undervalued based on the following multiples.
Moreover, its valuation also implies an 11.3% free cash flow yield.
Additionally, PSX has a nearly perfect 8 out of 9 Piotroski Score, indicating healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. Its 10% gross margin and 25.5% ROCE are impressive figures too.
However, its 9.5% shareholder yield and outstanding dividend may be its strongest selling points as one of the best stocks to buy now. A 4.21% dividend yield is something that looks enticing enough. But when you understand that payday is September 1 and that it’s grown at a 5.30% CAGR over the last 3 years, it’s easy to get even more excited. It could also continue to grow at 7.8% and a 7.9% 5-year CAGR.
The Technicals Paint an Even Rosier Picture
Barchart notes that several technical indicators are flashing BUY signals for PSX. Most notably, it gives PSX a 100% BUY rating for the long-term. That figure is especially relevant now because the entire case behind PSX being one of the best stocks to buy now are its long-term prospects thanks to a worsening energy crisis.
Barchart highlights PSX’s
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 50 Day Moving Average
- 50 – 200 Day MACD Oscillator
- 100 – 200 Day MACD Oscillator
- 100 Day Moving Average
- 150 Day Moving Average
- 200 Day Moving Average
- 100 – 200 Day MACD Oscillator
A STRONG BUY With the Legs to Move Another 24+%
Although recent analyst activity has been relatively quiet, TipRanks rates Phillips 66 a STRONG BUY because 7 out of 8 Wall Street analysts offering 12-month price targets for the stock rated it a BUY in the last 3 months. PSX currently has a high price target of $127.00, a low of $105.00, and an average of $114.50. The average price target represents a 24.14% upside from August 26, 2022’s closing price of $92.18.
PSX’s year-to-date low and high are $72.05 and $111.28, respectively.