While not an exact science, unusual dynamics among options traders may signal a big move ahead. For downstream energy giant Phillips 66 (NYSE:PSX), a sharp spike in volume in the derivatives market – and one leaning heavily toward bullish call options – could bode very well for the hydrocarbon specialist. Simply, astute traders may be running the math on the fossil fuel space. I am bullish on PSX stock.
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Specifically, following the close of the February 16 session, options volume for Phillips 66 reached 25,678 contracts against an open interest reading of 102,992. Moreover, the difference between the Thursday session volume and its trailing one-month average volume pinged at 280.36%. Notably, call volume hit 23,083 contracts while put volume reached a comparatively diminutive 2,595 contracts.
To be sure, PSX stock represents a strong performer due to the combination of Russia’s shock invasion of Ukraine and skyrocketing inflation. For instance, in the trailing year, Phillips 66 shares gained more than 23%. In sharp contrast, the benchmark S&P 500 (SPY) index slipped more than 5% during the same period.
Moving forward, at least one of these tailwinds may continue to cynically lift PSX stock. Primarily, the U.S. and western governments continue to provide Ukraine with military hardware, angering the Kremlin. Given that Russian President Vladimir Putin staked his entire tough-man reputation on the conflict, backing out may be impossible.
Also, the market may be pricing in the very real threat of prolonged violence. Along with price caps on oil shipments from Russia, the hydrocarbon sector enjoys plenty of tailwinds. Nevertheless, PSX can also look to the Far East for additional opportunities.
PSX Stock to Rise on China’s Reopening
In many ways, the new normal has come full circle. After scientists discovered COVID-19, the subsequent pandemic shuttered China’s economy. While other nations were eager to quickly reopen, the Chinese government took its time, stymieing the global recovery initiative. However, Beijing finally gave the green light, which should be a net positive for overall worldwide growth. Still, PSX stock may be among the top beneficiaries.
Interestingly, TipRanks contributor Joey Frenette identified two enterprises — Alibaba (NYSE:BABA) and Starbucks (NASDAQ:SBUX) – that could bounce higher on the reopening. Here, the basic math of rising consumer sentiment may augur well for BABA and SBUX. However, an even simpler math may arguably benefit PSX stock that much more.
Naturally, increased commercial activity implies greater critical resource consumption. In turn, those resources like crude oil – which have already been artificially depleted due to Russia’s belligerence – may experience greater demand. In other words, more money chases after fewer goods, an inflationary dynamic. Thus, PSX stock likely has nowhere to go but up.
Further, while the push for electric vehicles imposes a relevancy threat to hydrocarbon players, it may be decades before a mass-scale transition to electrification becomes a reality. For example, as great as EVs are, they’re terribly expensive. With so many highly-compensated workers facing the layoffs axe, this cost could be relatively more onerous.
Phillips 66 Stock Offers Great Value
Even if the fundamental narrative of China’s math doesn’t convince investors to bid up PSX stock, another equation might shift the framework. Phillips 66 stock offers great value.
Currently, the median price-earnings ratio of the oil and gas industry stands at 8 times. However, the market prices PSX stock at a trailing multiple of only 4.34, ranking better than about 71% of its peers.
Also, PSX stock trades at 0.3 times trailing sales. In contrast, the sector median pings at 1.04 times. Thus, regarding its P/S ratio, the energy giant is more attractive than 81.39% of the competition. As another bonus, PSX trades at 5.7 times free cash flow, cheaper than 61.55% of its rivals.
Is Phillips 66 Stock a Buy, According to Analysts?
Turning to Wall Street, PSX stock has a Moderate Buy consensus rating based on five Buys, five Holds, and zero Sell ratings. The average PSX stock price target is $126.40, implying 26.8% upside potential.
Supporting the stock’s bull case, on TipRanks, PSX stock has a ‘Perfect 10’ Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
The Takeaway: PSX Stock Follows Simple Logic
Options traders appear to be incredibly bullish on PSX stock and arguably for very good reason. With China’s economic reopening, the world’s second-largest economy will invariably see increased commercial activity. In turn, said activity will likely bolster resource consumption.
Given that critical resources already ping at artificially low levels due to geopolitical flashpoints, the impact of China’s demand could be massive. Therefore, acquiring PSX stock comes down to recognizing simple logic.
