Refining Stocks

Over the past 12 months there was a strong breakout trend among the refining stocks, but the question should be is this run over?
These large gains have made these stocks seem to have "popped", but analysts believe there is room to run.

Valero Energy Co. (VLO) traded at $31.90 and has a market value of about $17.6 billion. The consensus target price from Thomson Reuters is $38.53 and the 52-week range is $17.77 to $34.66. Valero has a dividend yield of 2.2%. The implied upside to the consensus target is 21%, and the target price is well above the 52-week high.

Marathon Petroleum Corp. (MPC) traded at $54.80 and has a market value of about $18.5 billion. The consensus target price from Thomson Reuters is $62.36 and the 52-week range is $28.53 to $56.22. Marathon has a dividend yield of 2.5%. The implied upside to the consensus target is 14%, and again the target price is above the 52-week high.

Phillips 66 (PSX) traded at $45.20 and has a market value of about $28.3 billion. The consensus target price from Thomson Reuters is $50.64 and the post-IPO range is $28.75 to $48.22. Phillips 66 has a dividend yield of 1.7%. The implied upside to the consensus target is 12%, and the target price is above the 52-week high.

Velero (VLO) is up ~50% YTD, and up 84% for 1yr. Despite this excellent run the stock is down ~53% over a 5yr period, for reference the S&P500 is down 5% for the same period.

Marathon (MPC) is up 64% YTD, and up 100% for 1yr period. Since July 2011 (when Marathon Oil split upstream and downstream into separate companies) the stock is up ~46%.

Phillips 66 (PSX) is up more than 37% since being spun off from ConocoPhillips (COP)

Historically, lower oil prices have helped the refiners margins. At the time of this blog oil is trading down to $88, well off of its 2012 highs. If you believe this trend will continue, then there could be even bigger profits to be made on these refining stocks. Further more the 2.5% - 1.7% dividend these three refiners are paying is attractive in this time of ultra-low interest rates.

There are many other players out there too. Tesoro Corp. (TSO) appears in almost all articles pertaining to the top refiners, it has had an excellent run, up over 133% for 1yr period. HollyFrontier (HFC) is up over 55% for 1yr period, and carries a 1.5% dividend. Of course there are always the major integrated oil companies, but they may be hurting on the upstream side to make gains on the refining margins.

Petrobras to Sell Gulf of Mexico Assets

http://247wallst.com/2012/10/03/petrobras-aims-to-sell-gulf-of-mexico-assets/

Petrobras Aims to Sell Gulf of Mexico Assets October 3, 2012 by Paul Ausick

The CEO of Petroleo Brasileiro S.A. (PBR), or Petrobras, says the company is “very near to closing a deal” for the sale of some $6 billion worth of assets in the Gulf of Mexico. The company is in talks with three potential buyers, according to a report in the Financial Times.

The Gulf of Mexico assets are part of a planned divestment of about $14.5 billion in the company’s assets as it seeks to cut costs and maintain the vast investment it needs to make to develop its fields offshore of Brazil.

For a sale of that size, Petrobras will need a deep-pocketed buyer. Reports on Brazilian TV have indicated that the usual suspects are lined up: Royal Dutch Shell PLC (RDS-A), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and BP PLC (BP).

BP, which is in the processing of shedding assets itself, is not a likely buyer, but we could see an offer come in from a Chinese company. For that to happen, a lot depends on the success of CNOOC Ltd.’s (CEO) $15.1 billion bid to acquire Nexen Corp. (NXY). Around 10% of Nexen’s assets are located in the United States, which requires that the U.S. give its approval for the deal. That is not a slam-dunk.

It is easy to imagine that Petrobras would be unwilling to entertain an offer from a Chinese oil company if the CNOOC-Nexen deal is scrubbed. Chinese firms may even decide not to make an offer. And even if that deal goes through, the next deal that would put more U.S.-based assets in Chinese hands might have a very slim chance of success.

iShares Emerging Markets Dividend Index Fund

At the end of February this year, iShares launched a new ETF; iShares Emerging Markets Dividend Index Fund (DVYE), which holds 100 dividend-paying emerging-markets companies, weighted by annual yield. The new ETF clearly is designed to go after the sweet spot carved out by the very popular WisdomTree Emerging Markets Equity Income (DEM) fund.

Since the ETF was just launched in February, the market cap is very small. I chose to invest in DVYE rather than DEM, there is not a huge difference in the two, and recent charts show they move together closely. The Wisdom Tree fund (DEM) charges an 0.63% management fee, while the iShares fund (DVYE) charges 0.49%. Not a huge difference, but if this is a fund you plan to hold for the long-term this can add up.

Typically a smaller fund adds a fair amount of risk as they get everything up and running, as well as the risk of the fund not making it (or having the plug pulled). In this case I think iShares is committed to this fund, and I expect it will have substantial growth in net assets.

I chose this fund, and fund category, after looking at my US market dividend stocks and related funds. The growth in this area has been strong, and i wondered if these stocks and funds had all reached the end of their runs. This led me to look overseas at similar funds. Either fund should be a good play on both emerging markets, and the trend of growth in dividend stocks.