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. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

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

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

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!