4-Star Stocks Poised to Pop: Valero Energy

Based on the aggregated intelligence of 110,000 investors participating in Motley Fool CAPS, the Fool's free investing community, North America's largest oil refiner Valero Energy (NYSE: VLO  ) has earned a respected four-star ranking. While five-star stocks have been the best performers, our data has shown that four-star stocks still outshine the market by a significant margin and shouldn't be taken lightly; conversely, low-rated stocks have woefully lagged the market average.

With that in mind, let's take a closer look at Valero Energy's business, and see what CAPS investors are saying about the stock right now.

Valero facts

Headquarters (Founded) San Antonio, Texas (1955)

Market Cap

$18.6 billion

Industry

Oil & Gas Refining

TTM Revenue

$116.16 billion

Management

CEO William Klesse (since 2006)

CFO Michael Ciskowski (since 2003)

Return on Equity (avg. last three years, through Mar. 2008 quarter)

28.6%

CAPS members bullish on VLO also bullish on

Vale (NYSE: RIO  )

Chesapeake Energy (NYSE: CHK  )

General Electric (NYSE: GE  )

CAPS members bearish on VLO also bearish on

Tesoro (NYSE: TSO  )

ExxonMobil (NYSE: XOM  )

Wachovia (NYSE: WB  )

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.

Over on CAPS, fully 1,145 of 1,176 of the All-Star members who have rated Valero -- some 97% -- believe the stock will outperform the S&P 500 going forward. These All-Star bulls include co-founding Fool David Gardner, a.k.a. TMFBreakerDave, and Hukphinn, both of whom are ranked in the top 1% of our community.

In November 2007, TMFBreakerDave informed our community that, "while there are any number of drillers these days, and operators of oil fields, what the world needs more of -- and what is a difficult (read: higher moat) business to operate in -- is the refiners."

An earlier pitch from Hukphinn in 2006 expands on that bullish line of thinking, stressing Valero's specific strengths:

[Valero] 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.

What do you think about Valero, especially after earnings, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 110,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.

Chesapeake Energy is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Foolish contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 31, 2008, at 12:07 PM, jasonjim wrote:

    What I don't understand about refiners of oil is why can't they pass on their full costs of production plus a good profit when they refine oil into gasoline and other products. Why, when they have to pay a hefty price for a barrel of oil can't they charge a hefty price for a gallon of gasoline which they produce from that barrel of oil, which equates exactly to their increased costs and the profit they desire. Other companies manage to pass on their costs, why can't Valero and Tesoro do the same. I keep reading about oil costs have doubled over the last year while gasoline has only gone up say 35% or so, thus reducing the spread that the refiners have to work under, and their profits. Why don't the refiners just say to the market, hey, you want gas, then pay for it full price----otherwise if we are not making money on producing gas we'll stop making it and put all of our efforts into producing diesel and other products which do give us a more reasonable margin of profit. Seems to me that they are not using the leverage they have for fear of really upsetting the American motoring public with the higher gas prices that are needed for the refiners to make a reasonable profit. In effect the refiners are subsidizing the American motorist for fear of a backlash if gas rises too high. This type of scenario can't last forever, eventually the refiners will rebel and demand their just due or else? It will probably happen sooner than later. If I was the CEO of Valero I would have taken this tactic 6 months ago, and to hell with the backlash.

  • Report this Comment On July 31, 2008, at 1:45 PM, smurphny wrote:

    VLO, TSO, FTO and the other refiners are an essential part of the whole energy process. They seem to be the only ones not obscenely profiting from the energy boom. This is not an equitable or sustainable situation. If their part of this process falters the entire oil-driven economy tanks because there is no other alternative to get from crude oil to gas tanks. They should not and cannot absorb this loss indefinitely. Crack spreads need to be maintained so that these corporations can make a decent profit. Why they are choosing to minimize profits is a mystery. Shareholders need to put some heat on management and start asking this question.

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