Phillips 66 (PSX), Valero Energy Corporation (VLO), Devon Energy Corp (DVN): Look for Gains With These Oil Refiners

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When it comes to investing in the energy sector, you probably know the usual suspects.  Companies like Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) dominate the space and carry huge market capitalizations in the hundreds of billions of dollars.  Stocks such as these are Dow Jones 30 components, and some of America’s best known and most closely followed companies.  They pump out big profits and are known for rock-solid balance sheets and reliable dividend increases.  However, you may not be as familiar with oil refinery stocks, which carry many of the same qualities as the big boys of the energy sector.  Stocks in the refinery industry have strong operations with solid dividends, along with more room for their stocks to run due to smaller market values than their mega-cap brethren.

Valero Energy Corporation (NYSE:VLO)Three names to consider

Phillips 66 (NYSE:PSX) is an interesting name both because it carries the largest market capitalization of the refiners and only recently began trading as an independent entity.  Formerly owned by ConocoPhillips, Phillips 66 (NYSE:PSX) was spun off last year.  At the time, management felt that each part of the company would be worth more than the sum of the parts, and they’ve been proven right.  Phillips 66 (NYSE:PSX) stock has soared since the spin-off, advancing more than 80% since the split.

Phillips 66 (NYSE:PSX) reported full-year 2012 adjusted earnings of $8.46 per share, compared with adjusted earnings per share of $5.66 a year ago.  Its impressive operating performance means that despite its huge share price acceleration, the stock still isn’t expensive on a trailing earnings basis.  The stock currently trades for less than 8 times its 2012 adjusted earnings per share.  In addition, the company has raised its dividend twice already, and yields 2% at recent prices.

Valero Energy (NYSE:VLO) is a close competitor of Phillips 66 (NYSE:PSX), with a slightly smaller market value of approximately $25 billion.  Like Phillips 66, Valero Energy Corporation (NYSE:VLO) also reported spectacular fiscal 2012 fourth-quarter and annual results.  Full-year 2012 net income attributable to Valero Energy Corporation (NYSE:VLO) Energy Corporation (NYSE:VLO) stockholders was $2.1 billion, or $3.75 per share. Included in the results were non-cash asset impairment losses of $983 million after taxes, or $1.77 per share.  Stripping away all one-time events, adjusted earnings per share came in at $5.59 for the full-year.

Valero Energy Corporation (NYSE:VLO) attributed its success to higher refining margins as well as lower refining expenses.  This combination led to the spike in Valero’s profitability.  Going forward, the company intends to utilize cash from operations effectively for shareholders through a number of initiatives.  First, management intends to keep buying back stock to increase earnings per share. For the full-year 2012, Valero used $281 million to purchase 10.6 million shares of the company’s stock.

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