Value in Valero

11/25/2014 7:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

I think the most attractive stocks are to be found in the energy industry. When you see high-quality fallen angels whacked like this, you have a layup shot for long-term profits, suggests Jim Powell, editor of Global Changes & Opportunities.

Excellent returns are especially likely because the energy industry has a long history of recovering from downturns and going onto new highs.

Many fortunes have been made by investors who did nothing more than play the energy cycle over and over again. It’s not exciting, but it works.

A new recommendation that I think you should consider is Valero Energy (VLO), America’s largest oil refiner.

I think Valero is in line for higher profits because it is one of the world’s most efficient refiners. As such, a great deal of the new shale oil is being sent to the company’s nine Gulf Coast facilities.

New pipelines from the oilfields will increase the amount of oil to Valero and reduce its costs at the same time. The company also owns and operates ten ethanol plants.

I also find Valero attractive because it sells much of what it produces directly to end users.

The company has over 7,400 wholesale and retail outlets including service stations, truck stops, and heating oil operations. Branded retail outlets include Valero, Diamond Shamrock, Ultramar, Beacon, and Texaco.

Investors are so nervous about the Middle East, low oil prices, the weak economic outlook, and the stock market, that Valero currently has a very low P/E of 8.6 and a 2.40% dividend yield. I think VLO will perform well in long-term accounts.

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