For investors who want to invest in the oil and gas space without worrying about the extreme volatility that has been a hallmark of the space in the past few quarters, gas station stocks represent a suitable alternative. That’s because unlike companies which are into exploration and drilling, companies which operate gas stations are relatively immune to the fluctuations in crude oil prices, since their margins remain nearly the same regardless of the price of a gallon of petrol. Most gas stations also run a convenience store along with their core operations, which acts as an additional revenue stream. Moreover, unlike other commodities which witness a decline in consumption when their prices increase, gasoline has an almost inelastic demand. Hence, whatever the price per gallon of gasoline may be, the number of gallons a gas station sells doesn’t fluctuate much. Taking into account all of these advantages, we have compiled a list of gas station stocks based on their popularity among the hedge funds in our database going into 2016. In this article, we will go through the five gas station stocks that topped the rankings and which could have the potential to outperform their peers going forward.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).
#5 Murphy USA Inc (NYSE:MUSA)
– Investors with Long Positions (as of December 31): 19
– Aggregate Value of Investors’ Holdings (as of December 31): $190.55 million
Though shares of Murphy USA Inc (NYSE:MUSA) appreciated by over 10% during the December quarter, the number of funds tracked by us long the stock inched down by three while the aggregate value of their holdings in it came down by $18.2 million during the period. Billionaire Mario Gabelli‘s GAMCO investors was one of only a few funds which increased its stake in the company during the fourth quarter, increasing its holding by 4% to 487,700 shares. Murphy USA Inc (NYSE:MUSA) operates the vast majority of its gas stations at Wal-Mart locations. However, the seemingly dire decision by Wal-Mart Stores, Inc. (NYSE:WMT) earlier this year to operate its own gas stations has had no impact on Murphy USA Inc (NYSE:MUSA)’s stock, as it currently trades up by 2.18% year-to-date. For the fourth quarter, Murphy USA reported EPS of $0.69 on revenue of $2.93 billion, far below analysts’ expectations of EPS of $1.05 on revenue of $3.24 billion.
#4 CST Brands Inc (NYSE:CST)
– Investors with Long Positions (as of December 31): 23
– Aggregate Value of Investors’ Holdings (as of December 31): $697.08 million
Investors in our database with long positions in CST Brands Inc (NYSE:CST) declined by two during the fourth quarter, but the aggregate value of their holdings in the company increased by $57.8 million. Shares of CST Brands Inc (NYSE:CST) were trading with significant year-to-date losses a few weeks ago, but have since recovered thanks t the company announcing on March 3 that it is exploring strategic alternatives to further enhance shareholder value. Along with the announcement, the company also revealed that it has reached an agreement with activists JCP Management and Arnaud Ajdler‘s Engine Capital to appoint their respective nominees, Tad Dickson and Rocky Dewbre, to its Board of Directors. Engine Capital initiated a stake in CST Brands during the fourth quarter, purchasing 506,445 shares of the company.
The top three gas stations stocks to buy now are revealed on page two.
#3 Phillips 66 (NYSE:PSX)
– Investors with Long Positions (as of December 31): 35
– Aggregate Value of Investors’ Holdings (as of December 31): $6.72 billion
Ownership of Phillips 66 (NYSE:PSX) among investors in our system inched up by two during the fourth quarter, while the aggregate value of their holdings in the company remained unchanged. While several of its integrated peers have been hit hard because of the decline in crude oil and natural gas prices, by virtue of being largely a downstream refiner, Phillips 66 (NYSE:PSX) hasn’t suffered the same fate. Shares of the company have appreciated by over 7% this year and still sport a respectable annual dividend yield of 2.54%. Phillips 66’s chemical business has helped it maintain its cash flows and is expected to continue doing so in the future, which is why investors and analysts are not worried about the decline in the company’s refining margins. On March 13, analysts at Raymond James boosted their price target on the stock to $92 from $88. With ownership of almost 61.5 million shares of the company, Warren Buffett‘s Berkshire Hathaway continued to remain the largest shareholder of the company in our database at the end of December.
#2 Marathon Petroleum Corp (NYSE:MPC)
– Investors with Long Positions (as of December 31): 50
– Aggregate Value of Investors’ Holdings (as of December 31): $2.58 billion
During the October-to-December period, investors in our system with long positions in Marathon Petroleum Corp (NYSE:MPC) inched up by four and the aggregate value of their holdings in the company also saw an increase of $91 million. However, investors which initiated a stake in the company during that period, which included Clint Carlson‘s Carlson Capital, might be regretting their decision right now, since shares of Marathon Petroleum Corp (NYSE:MPC) have fallen by almost 30% so far this year. On February 25, the company announced that its CEO and President Gary Heminger will also become its Chairman, replacing Thomas Usher, who plans to retire after the company’s annual shareholder meeting on April 27. A few days later, the company disclosed that it has agreed to drop-down its fee-based inland marine assets to MPLX LP (NYSE:MPLX) in exchange for $600 million worth of equity in the latter.
#1 Valero Energy Corporation (NYSE:VLO)
– Investors with Long Positions (as of December 31): 51
– Aggregate Value of Investors’ Holdings (as of December 31): $1.76 billion
Despite its ownership among top investors decreasing by five and the aggregate value of their holdings in it coming down by $83 million during the fourth quarter, Valero Energy Corporation (NYSE:VLO) was still the most popular gas station stock among the funds we follow at the end of December. Notable investors which increased their stakes in the company substantially during the fourth quarter included Jim Simons‘ Renaissance Technologies and Israel Englander‘s Millennium Management. Shares of the company have fallen by over 8% this year and most analysts feel they are a bargain at current levels. Analyst bullishness stems from the company’s better-than-expected financial performance over the past five quarters, the strong free cash flow it generates and the low trailing P/E of 8.33 at which the stock currently trades. Furthermore, analysts believe that Valero Energy Corporation (NYSE:VLO) is better protected than its peers from major headwinds and is also better positioned to grow its earnings in the coming quarters. According to recent reports, Valero Energy Corporation could be a potential buyer of gas station and convenience store operator Sunoco LP (NYSE:SUN). The 21 prominent analysts and research houses that cover Valero Energy currently have an average rating of ‘Buy’ and an average price target of $76.59 on it.