Refiners Pass Screen Test

By Robert Rapier and Igor Greenwald • June 2, 2015 • Issue Articles

In this issue:

When we added the first refiner to the portfolios in early 2013 and dramatically expanded our exposure to the sector later that year this is what we were counting on: a counter-cyclical boost from a group that tends to do better after oil prices have dropped.

It’s the same expectation we had when designating three refiners as Best Buys three months ago, while adding a new pick that’s already returned 28%.

Now we’re revisiting the group, and that selection, with a new screening tool designed to zero in on fundamental bargains. The result is another new pick with a familiar name and the decision to take a partial profit on a big winner.

Refiners won’t always be so dear to our heart, but for the moment they continue to benefit from the glut of domestic crude and strong overseas demand for diesel fuel. That’s a winning combination with some staying power.

Portfolio Update

  • Alon USA Partners (NYSE: ALDW) added to Aggressive Portfolio. Buy below $21

  • Tesoro (NYSE: TSO) downgraded to Sell Half in Growth Portfolio

Commodity Update

There wasn’t a whole lot of movement in oil prices since the previous issue. West Texas Intermediate (WTI) finished last week at $59.91/bbl, up 4 cents a barrel since our previous issue. Brent crude fell $1.70/bbl to $65.24/bbl. Natural gas prices, having advanced strongly leading up to the previous issue, tumbled to $2.62 per million British thermal units (MMBtu), down $0.39/MMBtu since our previous issue.

In Other News

  • Credit Suisse issued a report noting that coal companies are cheap and with good reason, as the outlook for the group remains bleak

  • Privatization in Mexico took another step forward as the country approved 19 companies — among them ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) — to bid on 14 shallow-water exploration blocks

  • A crude oil pipeline owned by Plains All American Pipeline (NYSE: PAA) ruptured near Santa Barbara, Calif., spilling more than 500 barrels of crude oil into the Pacific Ocean

  • The Association of American Railroads reported that the volume of crude carried by U.S. railroads fell nearly 14% in the first quarter from the fourth quarter of 2014 as oil companies reduced shipments.

Stock Talk

Comments Guidelines
Michael Messinger

Robert A Giunco

Robert, What has happen ended to the pipelines? My portfolio is full of EPS,OKS! TRP,PBM etc. They are all down 25-30 percent and (most all) keep raising their dividends! Does not make sense to me as most are fee based.

Robert Rapier

Robert Rapier

Was just talking to Igor about this earlier, and we addressed it in today’s web chat. There are several factors weighing on many of the midstream MLPs, but the fundamentals for the sector still look good. Here was Igor’s response to the question (which you might have asked?):

We don’t recommend OKS but do have DPM in our portfolios. They’re big gas gatherers and processors that have been hurt by the decline in NGL prices, since they get paid in part with some of the NGLs they separate from the gas stream. DPM is relatively well hedged at this point for the near-term, but its general partner is a 50/50 JV with a sharply degraded credit profile at this point, hence the investor jitters. I think they have the scale and the assets to pull through. Can’t speak specifically to OKS.

Add New Comments

You must be logged in to post to Stock Talk OR create an account