Very few of the stocks in my portfolio have delivered better third quarter performance than Valero (VLO). The stock is up some 50% for the quarter and the company continues to pick up positive catalysts (see below) and still sells at a compelling valuation. I see further gains ahead for this hot refiner.
Recent positive catalysts for Valero:
- The company is in discussions to sell off its low margin gas convenience store network. Rumored price tag is $3.5B and will make VLO a pure play refinery stock which should be a positive for the stock.
- TheStreet just reiterated its "Buy" rating on VLO.
- BP (BP) might have to sell its huge Texas City refinery at a significant discount. Valero is rumored to be the interested buyer. Huge positive for the stock if it can pick up this refinery capacity at a bargain basement price obviously.
- Consensus earnings estimates for both FY2012 and FY2013 have risen substantially over the past two months.
"Valero Energy Corporation operates as an independent petroleum refining and marketing company. The company operates through three segments: Refining, Ethanol, and Retail." (Business description from Yahoo Finance)
4 additional reasons Valero is a still a buy at under $31 a share:
- Even after recent run, VLO is trading in the bottom third of its valuation range based on P/E, P/S, P/CF and P/B.
- The 14 analysts have a mean target of $38.50 a share, about 25% above its current stock price.
- The stock is still cheap at just 3% above book value and under 7 times forward earnings.
- The company has more than doubled its operating cash flow over the past three year and VLO also yields 2.2%.
Disclosure: I am long VLO.