Why is oil complany doing so well?

[GraceAbounds]

Let's talk Valero

With Valero up almost 26% over the past 12 months versus the paltry sub-3% return of the S&P 500, it seems as good a time as any to question whether the stock can continue to deliver market-beating returns.
Though refiners like Valero don't directly profit from higher oil prices, rising prices do tend to boost the crack spread that refiners do profit from. And though oil fell back from the highs that it touched earlier in the day, it is still breathing down the neck of $100 per barrel.

On The Motley Fool's CAPS service, Valero has managed to score a perfect five-star rating from an aggregate 2,740 investor ratings (2,640 bulls versus just 100 bears). Though other refiners such as Delek and Alon share similarly high ratings, Valero blows both out of the water in terms of the total number of players bullish on the stock.

Hukphinn, one of CAPS top rated players, has been bullish on Valero for over a year now and gave this pitch in support of the stock:

[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.
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There are still a lot of unknowns out there when it comes to the magnitude and duration of the housing debacle and how much exposure our financial institutions have to instruments barely worth the paper they were printed on. In an uncertain environment, the large and growing need for energy seems to be a pretty safe bet. Unless new refineries start springing from the earth, or it turns out Valero has been sitting on a bunch of subprime CDOs, I think CAPS players have highlighted a winner.

Let's talk Valero - Top Stocks

 

[BadBoy@TheWheel]

Valero is a safe bet. The only problem they are going to face is a commonality with BP.

BP made a mark in the US primarily by buying up large pre-existing refineries, namely AMOCO OIl's assets. The refineries they purchased were old, outdated and in dire need of millions of dollars worth of repairs, perhaps into the billions. And as demonstrated in Texas City Texas, that finally came homw to roost.

Valero I know for a fact has a culture of taking care of its employees and spending tons of money in regards to updating and maintaining the assets they have collected. What they have to face in the future is that danger in any big corporation, rapid exspansion, almost to the point of key issues getting lost in the fray until a new management system can be established to put thing back in order.

I think you will find in the next few years one of two things, endemic management issues both financially and operationally, or what will become perhaps the most stable and conscientious oil conglomerate to exists both inside and outside the US.

My perspective for what it's worth from inside the indistry.

Good stuff Grace

 

[GraceAbounds]

Thanks Badboy.

 

[BadBoy@TheWheel]

You are certainly welcome, I enjoy the intellectual discussions almost as much as just plain being a goofball....Hard to believe I know.

 

[GraceAbounds]

I'm the same way, so not hard to believe at all. It is great having you here.