Let's talk Valero
Posted
Nov 21 2007, 06:33 PM
by
Matt Koppenheffer
Rating:
With Valero up almost 26% over the past 12 months versus the paltry sub-3% return of the S&P 500, it seems as good a time as any to question whether the stock can continue to deliver market-beating returns.
Though refiners like Valero don't directly profit from higher oil prices, rising prices do tend to boost the crack spread that refiners do profit from. And though oil fell back from the highs that it touched earlier in the day, it is still breathing down the neck of $100 per barrel.
On The Motley Fool's CAPS service, Valero has managed to score a perfect five-star rating from an aggregate 2,740 investor ratings (2,640 bulls versus just 100 bears). Though other refiners such as Delek and Alon share similarly high ratings, Valero blows both out of the water in terms of the total number of players bullish on the stock. [readmore]
Hukphinn, one of CAPS top rated players, has been bullish on Valero for over a year now and gave this pitch in support of the stock:
[Valero] is the largest independent U.S. refiner of oil, and it has a unique capacity to process sour crude, which represents a great proportion of the new supply of oil (e.g., from Saudi Arabia and, to a much lesser but increasing extent, the Canadian oil sands). Since new refineries are not coming online anytime soon, and other refiners don't have, and are not likely to develop in the short to medium-term, the capacity to process sour crude effectively, Valero enjoys a competitive advantage that will likely benefit its shareholders for some time to come.
There are still a lot of unknowns out there when it comes to the magnitude and duration of the housing debacle and how much exposure our financial institutions have to instruments barely worth the paper they were printed on. In an uncertain environment, the large and growing need for energy seems to be a pretty safe bet. Unless new refineries start springing from the earth, or it turns out Valero has been sitting on a bunch of subprime CDOs, I think CAPS players have highlighted a winner.
(Full disclosure: I do not have a financial position in any of the companies mentioned.)
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