The Secret Energy Trade Investors Are Ignoring: Western Refining Inc (WNR), Valero Energy Corporation (VLO)

Western Refining

This is the smallest company on the list, with a market cap of just over $3 billion.

In addition to refining, Western also has wholesale and retail operations to provide some mix of revenuestreams. One of the company’s biggest weapons is its proprietary access to pipelines, enabling it to control the supply of West Texas Intermediate crude being shipped to its competitors. Western has also begun cutting costs to improve margins, closing old refineries and consolidating others. The company recently raised its dividend by 50%, to 12 cents a share, and now carries a dividend yield of 1.4%.

But in spite of all that good news, Western’s forward P/E ratio of 7 is a discount to its peer average of 9.

Valero Energy

Valero is one of the largest refiners in North America, with 14 refineries across the United States, Canada and the Caribbean capable of producing 2.8 million barrels per day. That has put Valero in the perfect position to cash in on the crack spread, with shares surging more than 64% in the past year.

To further streamline the company’s business, Valero recently announced its intent to spin off its retail unit, CST Brands. The spinoff is expected to close in the second quarter of 2013 and further unlock the core value of Valero’s powerful refining operations. With a forward P/E ratio of 8, Valero trades at a discount to its peer average of 9 and the S&P 500′s 14.

Risks to Consider: Better domestic infrastructure for the distribution and consumption of refined energy products would strengthen West Texas Intermediate crude prices and tighten the spread with Brent. A stronger domestic economy would also fuel more demand for West Texas Intermediate crude, also tightening the spread with Brent.

Action to Take –> The crack spread is enabling refiners to log record profits. That dynamic is in position to continue due to regional production factors. That means it’s still a great time to buy refiners. My two favorite stocks from the group are Western Refining because of its proprietary access to pipelines and Valero Energy because of its dominant market position.

This article was originally written by Michael Vodicka, and posted on StreetAuthority.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

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!