Northern Tier Energy LP (NTI), Alon USA Partners LP (ALDW), Calumet Specialty Products Partners, L.P (CLMT): This Sector’s Pullback Has Exposed The Market’s Deepest Value

Yet for investors, it’s fair to wonder if it’s best to wait until the current cycle of falling profit margins and profit forecasts has played out. “We find that at key inflections, investors often look through short-term EPS revisions,” noted Goldman Sachs analysts. In other words, by the time you wait for earnings estimates revisions to trend upward, you will have missed out on some of the next rally in this group.

Goldman Sachs recommends HollyFrontier Corp (NYSE:HFC), Marathon Petroleum Corp (NYSE:MPC), Western Refining, Inc. (NYSE:WNR), Alon USA Partners LP (NYSE:ALDW) and Northern Tier Energy LP (NYSE:NTI). The first two stocks carry more than 50% upside to Goldman’s price targets.

Merrill Lynch rates Valero Energy Corporation (NYSE:VLO) and Tesoro Corporation (NYSE:TSO) as a “buy,” as those companies have the best organic growth prospects in the industry, thanks to planned capacity additions. They also think Valero Energy Corporation (NYSE:VLO) will soon spin off a portion of its business in the form of an MLP. Such moves have historically given instant boosts to share prices.

Risks to Consider: Any global crises that lead to a spike in oil prices would put further pressure on refiners’ profit margins. Also, a sharp economic slowdown in the U.S. would hamper demand for refined products like gasoline and diesel. 

Action to Take –> The recent share price pullbacks are a reflection of 2013 industry dynamics. But as long as you focus on the long-term dynamics impacting refiners, you’ll find the current low earnings multiples to be quite appealing.

P.S. — Valero Energy Corporation (NYSE:VLO)’s potential MLP spinoff could be big news for investors. Some of the most successful MLPs often have a wealthy and powerful company backing them — or what we like to call a “Rich Parent.” These “Rich Parent” stocks are one of our favorite ways to profit in the market right now. One is a low-risk play that has already returned 333% since going public in 2008, while another yields nearly 10%. To find out how to get the names of 20 of our favorite “Rich Parent” MLPs, click here.

– David Sterman

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