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Recent reports are that Warren Buffett flushed 7.7 million shares of Intel (NASDAQ:INTC). Buffett also made new acquisitions in the refining industry. I suggested the possibility of Buffett acquiring a stake in Valero Energy (NYSE:VLO) back in December 2011. When Buffett makes a move into a new equity, it's worth a look. Below I will examine upstream oil giants Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP), and downstream players Phillips 66 (NYSE:PSX) and Valero Energy. I will look at the reasons Buffett has taken an interest in the refining industry.

Exxon Mobil is the second largest publicly traded company on the planet with market capitalization of around $409 billion. The stock trades at about $89 and features a 9.34 trailing twelve month price to earnings ratio and a price to earnings growth ratio of 1.42. With the addition of a 2.49 price to book, you have the profile of a value stock. The fundamentals continue on a positive note with a 29.02% return on equity and a 49% increase in quarterly year-over-year earnings. But corresponding revenues dropped 7.1%. This counterintuitive result was achieved, in part, by controlling cost of revenue and general selling and administrative expense. But the bulk of it was the result of a net gain of $7.5 billion after asset sales and tax-related items...not a repeatable event. That said, Exxon has Herculean financial strength evidenced by a debt to equity ratio in single digits, almost $18 billion in cash and a textbook current ratio of 1.04. Exxon also favors each shareholder with a dividend yielding 2.4%, exactly 3 times more than you would receive on a 5 year U.S.Treasury bond.

ConocoPhillips recently spun-off its refining operations (Phillips 66) and we will analyze that company later in this piece. That said, ConocoPhillips is a mere shadow of its rival Exxon, with a market cap around $70 billion. Trading at about $58 and boasting a twelve month trailing price to earnings ratio of 6.73, ConocoPhillips is currently the only major integrated oil and gas equity in the Buffett portfolio. Post spin-off, price to earnings growth took a big hit and stands at 5.29. The 1.51 price to book and 20.31% return on equity are redeeming factors. Quarterly year-over-year revenue and earnings growth come in at 17.3% and 33.4% respectively. Impressive! ConocoPhillips' financial strength and soundness is slightly diminished, post spin-off, with debt to equity and current ratios now reporting at 58.05 and 0.92 respectively. ConocoPhillips still has a vault full of cash ($1 billion). The reported dividend is very distorted as a consequence of the special dividend of $17.025 paid on May 1st of this year. That will no doubt return to a level more in line with the historical yield of around 3.5%. Some insights into the direction of ConocoPhillips dividend are offered here.

Phillips 66 has a market cap approaching $26 billion and trades at around $41 per share. Phillips 66 boasts a 5.29 price to earnings ratio, a 1.13 price to earnings growth ratio and a 1.34 price to book, which collectively scream, "Buy me now!" Warren Buffett did exactly that! While it's true that he automatically received shares (1 for every 2 shares of ConocoPhillips) it is important to note that he went on to acquire additional shares, I calculate about 12 million, demonstrating his rather bullish stance on this equity. Phillips 66's return on equity is unavailable at this early stage of its development, but we have quarterly year-over-year revenue and earnings growth extrapolations of -11.6% and 13.7% respectively. Phillips 66 has $3.1 billion in cash and further demonstrates its solid financial footings with a 42.08 debt to equity and a 1.24 current ratio. It is premature to have any meaningful discussion of dividend yields and payout ratios. The notable takeaway on Phillips 66 is that Buffett is bullish on this one!

Now we come to the new addition to Buffett's energy segment, Valero Energy. Buffett bought around 2.81 million shares. Valero has a market cap of about $16 billion and trades at around $29 per share. Trailing twelve month price to earnings is 9.85, price to earnings growth is 1.46 and price to book is 0.99. It's easy to understand Buffett's interest in this company! Return on equity is listed as 'N/A' in Yahoo! Finance so I turned to finviz.com and got a figure of 10.01. Quarterly year-over-year revenue and earnings growth were both reporting positive at 10.8% and 11.7% respectively. Valero sits on $1.56 billion in cash and sports a strong financial base with a debt to equity of 47.54 and a current ratio of 1.30 (also from finviz.com, absent a reported value from Yahoo! Finance). Valero pays shareholders a respectable dividend yielding 2.2% against a very modest payout ratio of 17%. It is not difficult to see why this company is attractive to Buffett. An interesting aside - on a discounted cash flow basis, Valero is undervalued 69.6%!

To summarize, we see that Buffett has largely maintained his holdings in ConocoPhillips, and expanded holdings in Phillips 66 well beyond the level of shares he held as a result of the spin-off. Possibly intrigued by the refining business and impressed with earnings results, Buffett went on to acquire a small stake in yet another refiner with stellar, value-oriented fundamentals. If you're tempted to follow in those footsteps, I hope you find this information useful as you perform your own due diligence.

Source: Buffett Is Right About These 2 Oil Refiners