Follow Warren Buffett into this stock: Traders

Warren Buffett is making the case for energy sector leader Phillips 66. And traders watching both the charts and the fundamentals say the stock indeed looks to be a good buy.

In a Tuesday interview on CNBC, Buffett made the point that "Phillips 66 is not a pure refiner—they've got a big chemicals division, a midstream business, so we're not buying it as a refiner [and] we're certainly not buying it as an integrated oil company—we're buying it because we like the company and we like the management."

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Buffett's Berkshire Hathaway recently disclosed a 10.8 percent stake in the company.

Phillips 66 has risen 10.6 percent this year, even as the broader energy sector has slid some 20 percent. Unlike most energy companies, Phillips 66 actual sees some benefits from falling oil prices, because gasoline has held up much better than crude itself; as the spread between the two commodities increases, refiners' profit margins rise as well.

For Oppenheimer technical analyst Ari Wald, refiners are a diamond within "an energy sector we dislike."

In fact, noting the impressive relative performance of the refining stocks, Wald would recommend a long position in Phillips shares against a short position in the energy sector ETF (XLE).

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Boris Schlossberg of BK Asset Management says that Buffet is not making a bet on the refining group, "but rather a bet that Phillips 66 will produce very steady cash flow in the next five to 10 years, transporting U.S. energy assets. Meanwhile, he gets paid 3 percent on a cash positive business," referring to the dividend yield.

"Pretty smart," Schlossberg added.

Phillips 66 shares were up more than 2 percent midafternoon Tuesday.



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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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