Warren Buffett Rings the Bell on Energy With Phillips 66

By Alex DUMORTIER, CFAFool.com

U.S. stocks are posting small losses to begin the week, with the Dow Jones Industrial Average and the benchmark S&P 500 down 0.58% and 0.59%, respectively, at 2 p.m. EDT.

In the last couple of weeks, I've been banging the drum in this column regarding the materials and the energy sectors as likely sources of investment value. Contrarians and value investors, you have now been given your official starter's orders.

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After last Friday's market close -- just one day after the disclosure that billionaire investor Carl Icahn has accumulated an 8.5% position in miner -- a filing showed that Warren Buffett's has become the largest shareholder in refiner , with a greater than 10% stake, valued at roughly $4.5 billion.

Berkshire's shareholding leapt from 7.5 million shares at the end of the first quarter to 58 million at the end of last week.

On the face of it, the investment is a bit of a head-scratcher. Warren Buffett's forays into the oil and gas sector have met with mixed success. His 2003 investment in PetroChina earned an estimated return of 600% over a four-plus period; however, in his 2008 letter to Berkshire shareholders, he made this mea culpa:

Berkshire vice-chairman Charlie Munger credits Warren Buffett's to his being a "learning machine." In this instance, it appearsBuffett has learned that, for a long-term investor, it is more opportune to buy oil and gas companies after a "dramatic fall" in oil to $40-$50 (which is where we're back to now) than before.

Incidentally, Buffett was already very familiar with Phillips 66, as Berkshire had received shares of the company when it was spun out of... ConocoPhillips.

Spencer Jakab of The Wall Street Journal's Heard on the Street column has an interesting take on the attractiveness of Phillips 66 for Buffett:

It's quite true that oil and gas pipelines are not very different from railroad tracks or power-generation plants from a business standpoint in that they are assets that are difficult to reproduce, and therefore constitute a substantial barrier to entry against competition.

There is every reason to believe Berkshire's investment in Phillips 66 stake will produce satisfying returns -- as long as he holds it through several cycles in the energy market this time.

The article Warren Buffett Rings the Bell on Energy With Phillips 66 originally appeared on Fool.com.

Alex Dumortier, CFA, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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