Valero Energy Corp (VLO)

Well run, good pure play on refining. But you want to own refiners at beginning of cycle, when prices are low or going up, not now. Now you want to be in the integrated space.

Coming right down, as have a lot of energy stocks, seasonally weak. But trend is up, though a bit of volatility. Might get a bit more weakness through July. Energy is a really good investment. Could be a bit volatile with economic activity. For VLO, Kelt, and the etfs XEG and XLE, look at your technical lines over the next couple of weeks, you can pick some up and add to them over the summer.

He is neutral on this and is very cautious on energy and has been for the entire year. At this time there has been a real whip in refiners. He has backed away from the space, because they are really whippy. Unlike some stories, such as biotech, you take the stairs up and the elevator down, so you have to be really careful about your entry point. He would prefer something a little more conservative such as Mkt Vectors Oil Services ETF (OIH-N).

Has not been adding to his holdings, and wouldn’t add to it right now. In his view, this is the best operated independent refiner. It now pays a good dividend of something like 3.6%. However, if you look at the current P/E ratio, it is far higher than its historical single digit PE.

Refining doesn’t have anything to do with the price of oil, it has to do with crack spreads and refining margins. One of the things that has been absolutely killing refiners in the last 3-4 years is the RIN legislation of the Obama administration, requiring them to pay for renewable credit every time they produced gasoline and diesel fuel. The new administration is likely to change all that, and dramatically improve profitability. Dividend yield of 3.55%. (Analysts’ price target is $72.29.)

Every US refiner had to buy Renewable Energy Identification Number credits for its business and it destroyed their profitability. The new administration could be of a huge benefit to this industry. There have been 2 M&A deals in the refining industry in the last two weeks. (Analysts’ target: $66.88)

You should not be in it because it is not the right part of the cycle. It does better with declining oil prices. Also, it has had quite a run.

(Market Call Minute.) He doesn’t know where margins are going on the refining side. He thinks they are going to get squeezed a little given the rise in oil prices. It makes the earnings very volatile and you are not going to get a high valuation.

If you did a comparison against a broad index, this is weaker than the index. It had a corrective period in 2008 and has taken a long time to get back up. Also, the upward trend line has been violated.

(Market Call Minute.) Refiners have struggled a little lately. For him, on the energy patch as a whole, he would like to see a bit more time go by and a little more sustainability.