Western Refining, Inc. (WNR), Valero Energy Corporation (VLO): With Absurd Discount, Solid Yield and Industry Tailwinds, Is This A Steal?

Short Interest and Insider Selling

On the other hand, a major Western Refining shareholder recently pocketed more than $8 million by cashing out of a 250,000-share position. The attendant transactions occurred during the first quarter of 2013 and came near the top of the company’s aggressive run-up. At an average sale price of over $32 per share, it is likely that the insider pocketed a tremendous profit as a result of this deal. Investors who ascribe weight to insider sales would do well to watch Western for additional transactions of this nature.

It is also important to note that Western has a substantial amount of short interest. This has worried formerly bullish market-watchers and lends credence to the thesis that Western has reached a medium-term share-price top. The scope of the short interest in this company cannot be understated: At last count, more than 16 percent of the company’s float consisted of short-held shares. Needless to say, this could have major implications for the firm’s short-term stock-price movements.

Invest or Avoid?

On paper, Western Refining looks like a great value. However, it has a few notable drawbacks. In the end, investors must assess their own appetite for risk before initiating a long or short position in this company. Those who believe that Western stands to benefit from rising refining margins and other potential tailwinds may wish to initiate a long position at these levels. Those who remain skeptical about the company’s prospects might countenance a short position instead. However, high short interest and a cheap valuation could conspire to produce a classic short squeeze at any time.

In sum, this stock bears watching. Despite Western’s apparent value, the most cautious investors may wish to avoid the name for now. More aggressive longs can find ample justification to add to their positions at these levels. Likewise, short-side traders will find plenty to like here as well. Given the inherent risks of a long or short position in a stock like this, independent research is strongly advised.

The article With Absurd Discount, Solid Yield and Industry Tailwinds, Is This A Steal? originally appeared on Fool.com and is written by Mike Thiessen.

Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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