New Ruling Could Boost Oil Refiners

10/23/2019 5:00 am EST

Focus: ENERGY

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

VanEck Vectors Oil Refiners ETF (CRAK) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Global Oil Refiners Index, explains Crista Huff, growth and income expert and editor of Cabot Undervalued Stocks Advisor.

The index is a rules-based, modified cap weighted index intended to give investors a means of tracking the overall performance of companies involved in crude oil refining.

The International Maritime Organization is mandating the use of either scrubbers or low-sulfur diesel fuels for the world’s 39,000 ships and tankers, beginning in January 2020. The purpose of the mandate is to minimize sulfur oxide (SOx) emissions into the atmosphere, and the mandate is nicknamed IMO 2020.

I’ve been telling investors about this big change for many months now. I tend to be early on major market and economic developments.

I was recently chatting with a friend that is a Wall Street bond market guru. I’d told her about IMO 2020 and CRAK in the early summer, and she’s now reporting to me that she’s starting to hear a lot of chatter about IMO 2020 among financial professionals.

IMO 2020 is going to be expensive for businesses that import or export products across the world’s oceans, and it’s going to be expensive for consumers who purchase those products, but it’s going to be a windfall for crude oil refiners.

That’s because they’ll fulfill the demand for low-sulfur diesel fuel and earn good profits from it. Wall Street is projecting 2020 EPS increases of 86% at Marathon Petroleum (MPC), 31% at Phillips 66 (PSX) and 93% at Valero Energy (VLO) — the three biggest U.S. holdings within the ETF.

If you want to capitalize on the potential share price increases within the global refining industry that could result from their rising profits, the VanEck Vectors Oil Refiners ETF can solve the quandary of “which oil refining stock should I buy.” 

CRAK pays an annual dividend in late December, usually yielding 1-2%. CRAK is just now rising from a recent trading range. There’s short-term price resistance at $30. I rate CRAK as a "Strong Buy".

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