No Finer Entry Price on This Refiner

08/24/2009 1:12 pm EST


Eric Roseman

Editor, The Commodity Trend Alert

Eric Roseman, editor of Commodity Trend Alert, flags heavy insider buying at beaten down Western Refining.

We’re going long and strong a troubled turnaround story called Western Refining (NYSE: WNR). The refining business has been a dog over the last few years amid falling margins and plunging demand. Even a soaring oil price since February has largely failed to lift the sector. But something is going on at the El Paso, Texas-based [company].

Western Refining [is] an independent crude oil refiner and marketer of refined products in Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region. The company operates in three groups: the refining group, retail group, and wholesale group.

The Refining group operates the four refineries and related refined products terminals, and asphalt terminals. This group refines crude oil and other feed-stocks into finished products, such as gasoline, diesel fuel, jet fuel, and asphalt, as well as markets its products to wholesale distributors and retail chains.

The Retail Group operates service stations, which include convenience stores or kiosks that sell gasoline, diesel fuel, general merchandise, and beverage and food products. As of Feb. 27, Western Refining owned and operated 153 retail service stations and convenience stores.

The Wholesale Group distributes commercial wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah to customers in the mining, construction, utility, manufacturing, transportation, aviation, and agricultural industries.

Western Refining used to be a high-flyer. The stock ran all the way to $64.59 in 2007 before tanking under the weight of the credit crisis that summer; WNR now trades at just $6.39 or a whopping 90% below its best price since going public in 2006. That’s a crash. [The stock closed $6.11 Friday before spiking 6% to $6.48 by midday Monday—Editor.]

The company is saddled with high debt, wobbling cash-flow and bad earnings. The stock has a market-cap of just $438 million. That means this little stock can be extremely volatile—rising or falling in excess of 5% or more in a single trading session.

Normally, I’d never recommend a stock like this. But sometimes you have to take the plunge and follow what the insiders are doing—especially [in a market] environment of rapidly increasing insider sales since April. The big shots at WNR have been aggressively buying stock when most officers and directors in the same industry have been net dumpers.

On June 10 two senior officers at Western Refining purchased a cumulative $2,250,000 of WNR shares on the open market at an average price of $9 per share. This includes the company’s CEO and its president—both considered senior executives and worthy of tracking. Since that combined purchase at $9 the stock has plunged to $6.39 now—a significant 29% drop. Obviously, the big boys were early. We’re not.

The news in the refining industry has been absolutely horrid. We’ve gone from bad to worse. But the activity of insider purchases at Western Refining should lift heads for at least a quick trade.

Buy Western Refining up to $7.65. Place a 20% stop-loss on your entry price.

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