Refiners are subject to many sources of criticism, often affecting their stock prices in the short term. But, due to fundamental strengths and rising demand for U.S.-generated products, the following companies are in good standing.
Long-term focus often equals long-term value
Marathon Petroleum (NYSE: MPC ) CEO Gary Heminger focuses on the long-term benefits for investors. Last month, for example, Marathon announced it will continue its share repurchase program through September 2015—to the tune of $2.4 billion. Heminger's objective is to return capital to shareholders while making "value-enhancing investments in the business."
As seen below, a massive sell-off of Marathon shares occurred at a time when the firm was divesting assets and interests in offshore locations to raise cash.
The cash was used, in part, to fund recent buybacks. While the timing of future share repurchases is unknown and is subject to conditions like major commodity price swings or cash flow needs, the step nonetheless infers that Marathon's managers are anticipating future strength.
Plus, Marathon is poised to benefit from China's increasing demand for petroleum products. For example, the company is moving to meet rising demand by building new loading capacities and expanding diesel exports by 100,000 barrels a day at its Garyville, LA refinery.
South of the border is hot
According to the Wall Street Journal, Valero Energy (NYSE: VLO ) invested $3 billion in its plants to increase diesel production capabilities to meet European demand. Like Marathon, it is preparing its operational capacity to meet rising industry needs. Perhaps even more significant for risk-adverse investors, though, is that the firm is trading near its book value.
So, investors can embrace Valero knowing that the firm's liquidity value in asset terms is near its trading price. In the meantime, though, Valero continues to expand. It recently landed the largest Latin American fuel deal of the year whereby Valero will send 14.25 million barrels of various fuel sources to a Costa Rican refinery. Though the contract will be carried out over the next year, a short-term horizon, Valero's presence in the Central and Latin American markets will likely increase, especially given that it stores many of its resources in Aruba and surrounding regions.
Specific goals and strategic partnerships
Independent petroleum refiner and marketer Tesoro (NYSE: TSO ) is making waves. Since 2010, the firm's stock price appreciated around 191%. Investors can thank Tesoro's management team for growing the company's operational capacity, reducing costs and debt, and therefore increasing the bottom line.
Remarkably, Tesoro shows little signs of slowing down, either. Last quarter, for instance, Tesoro purchased an additional $100 million of its own shares while increasing its quarterly dividend by 25%. In addition to the aforementioned financial measures, Tesoro is moving forward strategically. By the end of the year, the firm hopes to further maximize its refinery utilization, which amazingly already sits at 93%, while further developing its growth on the West Coast via its joint venture with western supply chain magnate Savage Companies.
The joint venture's facility, which should operate in 2014, will cycle about 120,000 barrels per day with the ability to expand to 280,000 barrels. Plus, its unique location will enable crude oil to be transported to West Coast refiners.
Reading in between the lines
Even with uncertainty brewing in the marketplace, well-managed Marathon Petroleum, Valero, and Tesoro are still positioned to ride a wave of rising international demand. Investors who jump on the bandwagon rather than investing for the short term may get the last laugh.
OPEC's worst nightmare
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we’re calling OPEC’s Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock… and join Buffett in his quest for a veritable LANDSLIDE of profits!