"Refined" Gains

06/18/2004 12:00 am EST

Focus:

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

"What’s even more profitable than drilling for oil is refining oil," says Louis Navellier, editor of The Blue Chip Growth Letter. "A new refinery hasn’t been built in the US for over two decades, and demand is very tight." Here are his two favored ways to play this trend.

"ChevronTexaco (CVX NYSE) is the second-largest US integrated oil company, behind ExxonMobil. The company was formed by Chevron’s 2001 acquisition of Texaco. The company has proven reserves of 12 billion barrels of oil equivalent and daily production in excess of 2.5 million barrels of oil equivalent. The company has a presence in more than 180 countries, and it owns interests in chemical and power production businesses. ChevronTexaco owns or has stakes in more than 19,000 gas stations operating under the Chevron, Texaco, and Caltex brands. The company is one of the dominant refiners on the West Coast, where California requires extra expensive clean-burning gasoline. ChevronTexaco recently reported record earnings thanks to expanding operating margins and efficiencies implemented in its refining operations. The stock is a buy up to $99.

"Valero Energy (VLO NYSE) is the biggest independent oil refiner in the US. The company refines low-cost residual oil and heavy crude into cleaner-burning, higher-margin products, including reformulated gasoline and low-sulfur diesel fuel. It operates refineries in California, Colorado, Louisiana, New Jersey, Oklahoma, Texas, and Canada. Valero’s purchase of Ultramar Diamond Shamrock doubled its number of refineries to 12, gave the company an overall production capacity of more than 1.9 million barrels per day, and catapulted Valero Energy into the top tier of the nation’s largest gasoline retailers. The company recently reported that it expects record results in 2004, and it raised its quarterly dividend by 25% to 15 cents a share from 12 cents. This dividend increase is Valero’s second boost in the past year. Valero said that favorable industry conditions should result in expanding operating profit margins as well as record cash flow and earnings results this year. Buy up to $71."

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