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For investors seeking value and yield, Valero offers both

|Includes:Valero Energy Corporation (VLO)

Tim Biggam, TradingBlock  (December 21, 2011, 3:05pm CST) 

Symbol Analyst Target Price Target Date
VLO 24.50 June 15, 2012

Valero Energy Corporation (ticker: VLO) is a petroleum refiner and marketer. As of December 31, 2010, it owned 14 petroleum refineries located in the United States, Canada and Aruba. Its refineries can produce conventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium petroleum-based products. It operates in three segments: refining, ethanol and retail.

Valero looks to be carving out a base at the 20 level, an area that has held over the past several months. The stock is also trading at a trough valuation, with a forward P/E of just over 5. The company also has over 5.00 per share cash, with a nearly 3% dividend yield. In the current low-growth equity environment, I favor value and yield over growth, and VLO fits the bill on both fronts.

With a conservative estimate of $4.50 per share in 2012 earnings (consensus estimate: $4.85) and a multiple of only 5.5, I look for VLO to move back toward the 200-day moving average of 24.50 by June expiration.

Play of the Day

Based on Valero Energy Corporation's (ticker: VLO) current market price of $20.81 and using a target price of $24.50, a target date of June 15, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.  

Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com.
Powered by TradingBlock's TradeBuilder. 

Strategy (click for details) % Return at Target Probability of breaking 
even or better
Buy Jun Call Spread +146% 51%
Sell Jun Put Spread +86% 60%
Buy Jun Put Butterfly +76% 65%
Buy Stock +17% 59%

 * Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions.  Click here to view risks regarding selling stock short.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.

Stocks: VLO