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Rising Star Buy: Western Refining

Jim Mueller
August 11, 2011

This article is part of our Rising Star Portfolios series.

The two weeks since I made a second purchase of Western Refining (NYSE: WNR  ) shares for my Messed-Up Expectations portfolio have not been kind, either to that second purchase or most of the positions in the portfolio. But rather than letting the market put me into a funk about how badly the portfolio's done, I believe the market is giving me an opportunity to buy more of companies I believe are good investments at favorable prices.

The story for Western Refining hasn't changed. In fact, it's improved. In the article detailing my initial purchase, I pointed out how gross, operating, and net margins had turned around and were improving. For the trailing-12-month (TTM) period ending last March, the company had just turned bottom-line profitable and had enjoyed four sequential rolling periods of margin improvement.

After reporting second-quarter results last week, it has become even more profitable, improving TTM net margin a full 100 basis points, along with the other margins, as shown below.

Source: Capital IQ, a division of Standard & Poor's.

Part of the reason for this improvement has been the persistent spread in crude oil prices between Brent and Western Texas Intermediate (WTI). Western Refining buys the cheaper WTI oil, but sells its products at prices dependent on the mo