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%|
* 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.
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