2 Investments to Add To: Western Refining, Inc. (WNR) and More

Page 1 of 2

This article is part of our real-money portfolios series.

Of the 17 different positions I currently hold in my Messed-Up Expectations portfolio, 12 of them are in the green (from 3% to 144%), while only five are in the red (from 4% to 49%). My two biggest losers (Bridgepoint Education Inc (NYSE:BPI), down 49%, and Dendreon Corporation (NASDAQ:DNDN), down 35%) also happen to be very small positions, so they aren’t having a large negative effect on the portfolio.

Instead of watering those weeds, I’m going to put some more money to work into two of my flowers, by buying more shares of hard-disk-drive, or HDD, manufacturer Western Digital Corp. (NASDAQ:WDC) , up 40%, and oil refiner Western Refining, Inc. (NYSE:WNR) , up 144%. Let me share why I like them (besides the healthy investment returns) and why I’m buying more of each.

Western Refining, Inc. (NYSE:WNR)The cloud runs on HDDs
Western Digital is one of two companies that control nearly 90% of the HDD market — the other being Seagate Technology PLC (NASDAQ:STX), but I prefer Western Digital’s balance sheet situation more. The accepted story seems to be that this industry is in trouble because PCs are in decline, being replaced by tablets and other mobile devices, and everything is shifting to the cloud. Five-year growth estimates for the company are a measly 1.5%.

Yet that ignores the fact that we are creating more and more data in the form of pictures, sensor logs, Facebook posts, and so on. Further, more and more of this data is being stored either in the cloud or in devices like standalone storage devices that we can access wirelessly. Some estimates put worldwide data production at more than 750 terabytes per minute. Even if we store only 10% of that amount, that’s a lot of storage requirement! And HDDs are still the cheapest mass-storage devices around.

When I purchased additional shares last September, I pointed out that the market was expecting the company to produce only about $1.6 billion in free cash flow annually (discounted at 15%), with no future growth. At recent prices, that expectation is now about $1.75 billion. Yet the company produced more than $3 billion in FCF over the past four quarters, while blowing past analyst earnings estimates by an average of 28% per quarter. Big disconnect between what’s expected and what’s happening, which is why I’m buying more.

Two kinds of spread
Western Refining makes its money between the cost of the oil it refines and the price at which it sells the resulting gasoline, diesel, aviation fuel, and other products. This is called the crack spread, a phrase taken from the nickname for the chemical process of “cracking” the oil into its derivative products.

Yet the company has another advantage going for it, and that is the spread between the two popularly quoted prices of crude oil: Brent and West Texas Intermediate, or WTI. Oil that is produced in the North Sea (and elsewhere around the world) is usually priced at the Brent price, while oil produced in central North America is usually priced at the WTI price. Historically, these two prices have been fairly close to each other, but in the past few years, Brent oil has become quite a bit more expensive, currently about $20 more per barrel than WTI-priced oil.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!