Despite the elevated cost of oil these days, Valero Energy (NYSE: VLO ) has been a smart investment choice. Refinery building in the U.S. has not been a growth industry. The last time one was built was in 1976 when Marathon Oil (NYSE: MRO ) built one in Texas. That's quite a competitive moat for Valero. Even if another refinery is allowed to be sited (as rumors suggest might happen), the impact on Valero would be small. There just won't be many others popping up. Oil in the $60 to $70 a barrel range only gives it more of an advantage.
Yet while Valero's stock and the price of oil have marched hand in hand, it brings to mind the question whether it's still a good buy at these levels. Declines in oil prices have led to drops in Valero's stock. Do we see $100 per-barrel oil or sub-$50 oil prices in the future for this original recommendation?
CAPS take
Nearly 2,100 professional and novice investors alike have weighed in with their opinion on Motley Fool CAPS that Valero will overwhelmingly outperform the market. More than a third of those bullish investors are considered All-Stars, top-rated players who consistently outperform their peers. Even six of the eight Wall Street analysts tracking the refiner on CAPS believe it will continue to outperform.
Top-rated CAPS player ctmedic00 notes that a good part of Valero's advantage is in what it refines.
"I said it once and I'll say it again... VLO refines sour crude rather than light sweet crude. It's cheaper to get so that gives them a head start. I like companies that are doing it a little differently and in this rising oil market I like VLO because people are still buying Surburbans, Hummers and the like."
Hukphinn, another CAPS All-Star who outranks 99.44% of all other players, agrees that sour crude makes the difference.
"VLO is the largest independent U.S. refiner of oil, and it has a unique capacity to process sour crude, which represents a great proportion of the new supply of oil (e.g., from Saudi Arabia and, to a much lesser but increasing extent, the Canadian oil sands). Since new refineries are not coming online anytime soon, and other refiners don't have, and are not likely to develop in the short to medium-term, the capacity to process sour crude effectively, Valero enjoys a competitive advantage that will likely benefit its shareholders for some time to come."
My take
At one time, I had doubted that we would see $100 oil and thought we had a better chance to see $40 first. The persistence of high prices, though, coupled with rising demand, and Valero's distinct competitive advantages that have been discussed above, makes this oil refiner and retailer a strong competitor.
Yet as Fool contributor Toby Shute pointed out, it's not impossible to get a refinery sited in the U.S. Private equity wants to bring Canadian crude through pipelines to South Dakota, similar to what Frontier Oil (NYSE: FTO ) does. The so-called "Gorilla" project, while wanting to refine 40,000 barrels a day, is not operational. In fact, it's not even near being built. They've just been acquiring land. It remains to be seen if the project even comes to fruition.
Your take
Do you agree with our CAPS community that Valero can grease the skids to more profits? Chevron (NYSE: CVX ) , ConocoPhilips (NYSE: COP ) , and Exxon (NYSE: XOM ) remain other popular oil industry plays. Make your voice heard and let us know.
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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy is a simple guy-turned-oil tycoon in the great tradition of Jed Clampett.
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