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Refiners have followed up a stellar year in 2012 with strong performance in the first six weeks of 2013. The huge amount of oil production coming from the shale regions that will continue to expand should provide the refiners with a cheap feedstock for the foreseeable future. Consistently wide crack spreads have allowed refiners to produce robust profits, increase dividends and grow operating cash flow substantially. No major refiners have been built since the 70s and given the bent of the current administration that is unlikely to change until 2016, so overcapacity will not be an issue for years. Here are two relatively unfollowed refinery stocks that had big weeks in the market but could still go higher. Both are increasing their exposure to the fast growing production coming out of the Bakken.

Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT) produces and sells specialty hydrocarbon products in North America. It operates in two segments, Specialty Products and Fuel Products

4 reasons CLMT still has upside from $35 a share:

  1. I have owned CLMT for almost a year. I picked up the shares at $24 in March 2012. The company just announced a joint venture to build and operate a 20,000 barrel per day refinery in North Dakota. The refinery should be complete in less than two years and add significant capacity for Calumet.
  2. The stock is organized as a limited partnership and pays out most of its profits in distributions. CLMT yields 7.8% and has increased its distributions by better than 40% over the last four years.
  3. The company grew revenues better than 40% in FY2012 and CLMT sports a five year projected PEG of under 1 (.58).
  4. Despite the huge yield and growth prospects, the shares trade for just 9.5x forward earnings and 6x operating cash flow.

PBF Energy (NYSE:PBF) operates as a refiner and supplier of petroleum products. It has a couple of refineries on the East Coast that can process heavy crude. Its operation in Toledo, Ohio, is ideally positioned to process the light sweet crude coming from the Bakken, Utica and Canadian shale regions. The company just went public in December.

Four reasons PBF can go higher from $38 a share:

  1. It just completed a rail facility that will allow up to another 70,000 barrels per day to be carried from the Bakken shale region to its refinery in Delaware City, Del. This refinery facility can now process 40,000 barrels of heavy crude oil and 70,000 of light crude oil. Analysts believe revenue at the company will rise more than 45% in 2013.
  2. In its latest report on the company, Credit Suisse states PBF shares trade at the second-lowest EV/EBITDA multiple within the refiner group. Analysts expect more than 25% revenue growth in FY2013.
  3. The stock will yield more than 2% at current prices (less than 20% payout ratio). I anticipate the payout ratio and dividend payouts increasingly substantially as infrastructure projects are completed and it brings additional feedstock to its refining facilities.
  4. The stock is cheap at just over 7x forward earnings.
Source: Bakken Turbocharging These 2 Refiners