Has HollyFrontier Corp (HFC) Become the Perfect Stock?

In its refining operations, HollyFrontier Corp (NYSE:HFC) has continued to benefit from the big price differential between West Texas Intermediate and Brent crude. The situation has created a dividing line between winners and losers in the refining space, with HollyFrontier, Valero Energy Corporation (NYSE:VLO) , and Tesoro Corporation (NYSE:TSO) having their refineries close to cheap sources of oil and gaining a huge potential margin advantage over less well-placed rivals that have to import more expensive foreign oil for refining feedstock. Phillips 66 (NYSE: PSX) took extreme measures to ensure access to cheaper U.S. oil, signing a five-year deal to ship Bakken crude from North Dakota to the refiner’s New Jersey refinery.

At the same time, world demand for gasoline and other refined products has soared. Although U.S. use has been hampered by relatively high prices, exports of refined energy products have climbed substantially and are seen rising further, especially in the energy-hungry Latin American market.

In its most recent earnings report, HollyFrontier had impressive numbers, with net income up 75% year over year and refining margins up 52%. Yet the shares fell when utilization rates came in below expectations for the quarter. With the utilization issue likely being short-term in nature, though, the dip proved short-lived, and shares now trade at new highs once again.

For HollyFrontier to improve, it needs to keep pressing for growth and take maximum advantage of favorable cost conditions while they last. Eventually, spreads will narrow and the cycle will turn downward, but for now, HollyFrontier Corp (NYSE:HFC) is as closer to perfection as you could ask for a company in a low-margin business.

The article Has HollyFrontier Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned.

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