There’s Value Left in Energy, But Don’t Wait Too Long to Buy: Valero Energy Corporation (VLO), Chevron Corporation (CVX)

Page 1 of 2

As the market continues to rise, the pure upstream oil and gas businesses must be feeling left out. Many integrated oil companies are a little neglected as well, refiners not so much. Value in the energy sector continues to exist even for the refiners, however, so I’ll get that out of the way first.

The world’s largest independent refiner still has room to run…

Owning 16 petroleum refineries with a combined throughput capacity of approximately 3 million barrels per day, Valero Energy Corporation (NYSE:VLO) is the world’s largest independent refiner, and has recently been a favorite in my portfolio for its great performance. The stock still has room to rise as well, as long as domestic oil stays cheap.

Valero Energy Corporation (NYSE:VLO)The company saw a whopping 20% increase in profit as well as significantly higher gross refining margins– largely due to its reliance on cheap domestic crude. The company is also looking to find more cheap U.S. crude, and is spending $30 million to create a new crude oil receiving terminal for its refinery in Benicia, located in Northern California. According to a company spokesman:

“Right now, our California refineries have the lowest operating income of our system but the highest operating cost–that needs to change… Crude by rail is a relatively low-cost project that can significantly improve that refinery’s competitiveness.”

The company is looking to gain another 70,000 barrels a day from its new terminal, which will help cut costs and also improve profits for one of the company’s weaker refineries. Valero Energy Corporation (NYSE:VLO) expects to complete the project by 2014. I see no reason for this company to slow down, especially when there is a glut in cheap U.S. oil that Valero can take advantage of. The company currently trades at only about 12-13 times earnings, carrying a lowly forward P/E of only around 8.5.

The integrated oil and gas giants need some love as well…

Another seemingly cheap company is  Chevron Corporation (NYSE:CVX) . Grabbing this behemoth sooner rather than later would probably be a good idea. The company is diversified in many things other than just oil: such as mining, chemicals, power generation, and most importantly — natural gas.

Chevron is a leader in liquefied natural gas, and the company is continuing to invest in it. Besides leading the development of the Gorgon and Wheatstone LNG projects located in Australia, the company is also looking to expand its involvement with the country even further by investing in shale assets that cover an area 3 times the size of Hong Kong. Chevron Corporation (NYSE:CVX) is number two behind Exxon Mobil Corporation (NYSE:XOM) , the world’s largest international oil and gas company. Exxon is also the largest producer of natural gas in the U.S.

With natural gas getting a thumbs up from both Warren Buffett and Jim Cramer, it seems like now may be a good time to get in the game early. Exxon Mobil and Chevron are both big players in natural gas, and are investing in it to offset the potential fall in oil prices. With both Chevron and Exxon trading at low price to earnings multiples of around 9, they look cheap as well. Chevron Corporation (NYSE:CVX) also pays a nice dividend, yielding about 3%, while Exxon yields around 2.5%.

These two companies make for great long-term investments, period, and with oil demand expected to rise 5% this year in China — both companies may benefit from increasing oil demand as well. Both integrated companies, like Valero Energy Corporation (NYSE:VLO), are also seeing improved results with their refineries, with Exxon quadrupling its year-over-year downstream earnings last quarter. Chevron also saw increasing profits and higher refining margins last quarter.

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

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

6 Ways 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

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!