Valero Energy Corporation (VLO): CST Brands Inc Spinoff Should Fuel Shares of Both Companies

Phillips 66 (NYSE:PSX) could offset the credit costs with its expansion projects. The oil refiner plans to develop a natural gas liquids (NGL) fractionator (a process of cleaning natural gas) in Texas. It also recently signed agreements with a couple of companies to improve supplies of low cost North American oil to its domestic refineries.

Tesoro Corporation (NYSE:TSO), currently a favorite among scores of hedge funds, ranks among the best in the bunch. Its varied operations should cushion the credit outlay. The West Coast refiner pulled off a coup last year when it snagged a large California refinery from BP for $1.175 billion. Taking into consideration other assets in the deal, including pipelines, infrastructure, gas stations, and the ARCO brand, it’s said Tesoro Corporation (NYSE:TSO) virtually paid nothing for the refinery. That kind of savvy move is why Barclays’ calls it “our favorite stock in the group.”

However, Valero Energy Corporation (NYSE:VLO) could easily become investors’ favored stock. Since its June low, shares have risen a whopping 128%, with more upside likely.  Operating 14 refineries mostly in the central U.S., Valero has easy access to cheaper WTI oil and lower transportation costs. CNBC’s Jim Cramer said, “Valero has become the most aggressive company to take advantage of our new found technologically derived oil riches.”

Thanks to ample earnings, a near 2% dividend yield, and future prospects, Valero looks attractive. While Valero finds it best to separate from CST Brands, adding the spinoff to a Valero position makes a nice and natural compliment.

Diane Alter has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.