A Worthy Cash-Rich Refiner

Goldman Sachs (NYSE: GS  ) has upgraded oil refining and marketing major Marathon Petroleum (NYSE: MPC  ) from "neutral" to "buy." The investment bank's move, I believe, came at just the right time, with crude oil prices falling to an 18-month low. The internationally quoted Brent crude oil benchmark now trades at a little over $91 per barrel, while West Texas Intermediate (WTI) crude trades at around $80 a barrel.

Winds of change?
Marathon's exposure to the cheaper WTI crude sets it up perfectly to take advantage of the lower-priced benchmark. Falling crude oil prices should benefit refiners, especially for those that have refineries located in the Mid-Continent region. The once-coveted refining business had become pretty unfashionable in the past 12 months as gross margins contracted in the face of skyrocketing crude oil prices. The stage now looks set for a reversal of fortunes.

Advantage Marathon
Marathon's advantage, however, doesn't stem from the strategic locations of its refineries alone. A fundamentally solid financial position, backed by an investor-friendly management sets this company apart. In the first quarter, Marathon bought back shares worth $850 million. And a dividend yield of 2.3% is respectable at the least, if not outright fantastic. However, the best part is that Marathon has the ability to increase its dividends and repurchase more stock if required. Trailing-12-month free cash flow stands at a whopping $1.5 billion, an amazing feat for the refiner.

Strictly from an investor's standpoint, it'd be difficult for other refiners to compete with Marathon because of this huge advantage. Despite operating in similar regions, Western Refining (NYSE: WNR  ) has been downgraded by Goldman to "neutral." Western's share-price performance hasn't been viewed as attractive as those of its peers.

Foolish bottom line
Right now, however, it's advantage Marathon. The only difficult part is for investors to believe that refiners will recover from their dismal showing in the past few months. Whatever the case, The Motley Fool will help you stay up to speed on the top news and analysis on Marathon Petroleum. All you need to do is add the company to your free personalized Watchlist.

However, if you're looking for more ideas, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free.

Fool contributor Isac Simon owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Western Refining. Motley Fool newsletter services have recommended buying shares of Goldman Sachs. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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