Value at Valero?

08/28/2015 7:00 am EST

Focus: STOCKS

Jim Powell

Principal Analyst, Global Changes & Opportunities

The market had been on a roll for over six years with no real corrections. Many investors now think the party is over, notes Jim Powell, editor of Global Changes & Opportunities Report.

However, a stock’s value doesn’t just depend upon its price. What matters is how much a stock costs compared to what the company earns.

The lower the P/E, the greater the stock’s value. That’s happening today with many high quality blue chips.

We own the cream of the world's finest companies that will resume their upwards courses once the storm passes, as many have been doing for over a century.

My recommendation is to use this downturn to buy more of the high quality movers and shakers that we favor.

As for commodities, prices are still sliding. We won’t see any improvement in most commodity prices until the global economy heats up again, which isn’t likely anytime soon.

However, at some point oil prices will start to recover and XOM investors will reap the rewards.

Meanwhile, I recommend Valero Energy (VLO), America’s largest oil refiner.

The company should have rising profits over the next several years as Iran reenters the global energy market. As fuel prices drop, consumption will increase in every market.

American drivers are already responding to the lower fuel prices created by the shale oil boom. Automobile and truck sales are sharply up this year. In addition, buyers are trending towards bigger engines.

For a few more years at least, America should be able to enjoy the happy motoring culture that took root in the 1950s.

Valero actually makes money two ways. In addition to its refineries, the company sells its products directly to end users through over 7,400 dealers, including Valero, Diamond Shamrock, Ultramar, Beacon, and Texaco.

We are double dippers with Valero Energy. I recommended the stock last November when it was selling for $49.36.

I think a gusher of cheap Iranian oil in the global energy market will give the stock another leg up. With its low 9.5 forward P/E (vs. 16.2 for the S&P), Valero has a lot of room to rise.

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