agree, the Energy sector in general is going to be hot for a long time. It's the only game for me right now.
there is almost no downside into playing VLO at these levels. 1.5 book value and thats the gaap book value, their refineries are worth problably more than that, the market drastically understimates the gasoline oil boom for the long-run
VLO and other refiners are making a tiny fraction of the profits they used to make refining crude into gasoline, heating oil and distillates. This is why they've shut down entire refineries. Look for P/E contraction. There's lots of downside risk.
sure, but thats for next quarters or so. looking forward 5 years I cant see this not being a good buy
5 quarters? Oil is expensive, and their margins are tighter than they've been in a LONG time, now. Why else would Valero actually shut their refineries in Long Beach and Corpus Christi? It wasn't for maintenance. It's because they have no incentive to refine oil when they can't make a profit off of doing so. Also, as they and other refiners cut production, gasoline will become more expensive, further diminishing demand. This is not the seasonal 'summer driving season' play it has been the last several years, because of the economy, weak car sales, and a variety of other reasons.
Norsk hydro, the world's experts on deep water drilling, merged with Statoil sometime back and Norsk spun off their aluminum production as part of that deal. The Aluminum part kept the old name (NorskHydro). I like both these companies (Norsk Hydro trades OTC NHYDY) immensely. And they give you some protection against a weak dollar. I also like Frontier among the refiners (FTO). FTO is practically being given away at current prices.) FTO has great financials and low, low, low, PE, and a nice yield. This recession and coming market drop is going to be a great opportunity to buy refiners. They are oversold and may get even moreso! (Unless there is some inside information we don't know about, like Honda is going to open up a chain of hydrogen refueling stations all across America.)
When putting Domestic Drilling Programs together, our pricing model is at 90. This is for a reason. We do not expect oil to trade back below 90 anytime soon. 45, I can't ever see that happening again. Refrn. are great buys as we have not built any new ones since the 80s. I do not see the US building any new ones at the moment. However, Domesitic Drilling is a huge focus and the US may have to build one or two more Refrn with in this decade. The US targeting national policy for Energy Independent, not Independent of "energy".
I would tend to agree with all that you have stated. The crack spread is absolutely horrible right now, and for a variety of reasons it may not "snap-back" to the levels that are normally seen during a regular seasonal refining cycle. P/E contraction is certainly a very REAL possibility.