|
The refinery stocks, such as Valero Energy (NYSE: VLO) are weakening on a daily basis, suggesting that lower crude oil prices lie ahead.
Chart Courtesy of StockCharts.com
If petrodollar countries are starting to feel the economic pinch, it stands to reason that U.S. refiners are likely to have a difficult time as the global economy slows.
To be sure, slowing demand for gasoline was not too evident this weekend, as regular unleaded in the Dallas metroplex was selling below 2.40 per gallon in many places.
But the facts are fairly straight, with regard to refiners. At these prices, profits will only come if they start to decrease the amount of product on the market, which is why they're likely to buy less crude.
Refiners make money when they can pass on large amounts of their costs to consumers. But, they can't gouge consumers, either, so they walk a tightrope, looking for the "just right" set of pricing circumstances, which at this point are elusive.
Yet, as a value play, Valero is hard to resist, with a P/E ratio below 4 and a 3.76% dividend yield.
The company, though, had 1.6 billion dollars in cash and 7 billion of accounts receivables at the end of the last quarter, with 12 billion of debt. This means that if it collected every penny that it is owed, which is hard to fathom in this credit cycle, it would still need to sell assets if there was a run on its interests.
In other words, Valero may be vulnerable in a worsening scenario, which is why despite a low P/E, there are very few takers on the shares right now.
Tired of the volatility? Turn it into money.
Get Dr. Duarte's All NEW "Trading Futures For Dummies." The Trading Manual for All Seasons. Updated, revised includes new charts, and full chapter on ETF timing.
“Futures And Options For Dummies,” Dr. Duarte’s latest book is now available. The markets are responding to news and geopolitical developments like never before. In this environment, individual investors need to expand their investment horizons. "Futures And Options For Dummies " (John Wiley & Sons) has an excellent section on oil futures as well as the currency markets, while covering and expanding on the successful strategies in Doctor Duarte's other books. Order your copy today.
Doctor Joe Duarte's Market I.Q., offers subscribers a unique blend of intelligence, market commentary and trading strategy. Duarte's daily articles, and news summaries offer recommendations and analysis for ETFs, and individual stocks in the technology, health and biotechnology, and energy sectors. Doctor Duarte is a writer, and an emerging futurist, with a diverse background, and a growing audience. His combined expertise in health care, energy, and the effects of politics and global intelligence on the financial markets offer a unique blend of insight and information to thousands of active investors and political and intelligence aficionados around the world on a daily basis.
He is the author of four books: "Futures And Options For Dummies," "Successful Energy Sector Investing," "Successful Biotech Investing" and co-author of "After-Hours Trading Made Easy."
In early 2001 Dr. Duarte in "Successful Energy Sector Investing," correctly predicted that Venezuela's political problems could lead to an energy crisis in the United States.
In 2003, also Dr. Duarte was among the first to widely publicize the long-term friendship between French President Jacques Chirac and Saddam Hussein.
He has also appeared as a weekly guest on Market Mavens Radio, has logged appearances on KNX radio in Los Angeles, Financial Sense.com radio, and Wall Street Radio.
One of CNBC's original Market Mavens, Dr. Duarte has been writing about the financial markets since 1990.
His articles and commentary have been featured on CBS Marketwatch, Barron's, Smart Money, Medical Economics, and in Technical Analysis of Stocks and Commodities magazines.
In 2003, Doctor Duarte received second place, in the professional section, of the Medical Economics Investment Challenge with a 12-month return of 42%.
|
