ScreenShot: Refiners Are Fine

Readers know that I pay particular attention to the leadership industries and sectors in the market as a top-down approach to find stocks that have the potential to make significant gains over the intermediate to long term.

I think it is important for investors to keep constant tabs on leading and lagging industry groups, because the leading ones usually continue to hold their position until there is some type of catalyst to change that leadership.

I feel it is also important to anticipate lagging groups that will benefit from a catalyst, such as increasing earnings going forward, that may inspire institutions to rotate into that group when they take profits from the leading sectors.

The graph below shows the leading and lagging industry and sector growth performance over the past 12 months. As expected, you can see that the commodity-related areas continue to perform the best. I normally would focus on one of the top-performing industry groups and comment on a couple of leading stocks in that area. However, in looking at the list of worst-performing sectors, I noticed an industry group that looked out of place.

12-Month Performance

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Source: Bloomberg

That group is the oil and gas refining and marketing area. Many would expect it to be with the other top-performing groups in the energy area. However, weak refining margins have been wreaking havoc on the earnings of these companies. That didn't deter me from taking a look at a couple of the strongest companies in the sector, especially since many of them have been left for dead.

Peer Analysis

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In the peer analysis screen at right, I picked out two companies with solid long-term growth forecasts. The first is well-known Valero (VLO - commentary - Cramer's Take), which has a long-term growth forecast of more than 12%. The second stock is Tesoro (TSO - commentary - Cramer's Take), which has a long-term growth forecast of 15.5%.

Valero

Texas-based Valero is the largest independent refiner and marketer of petroleum products in U.S. It has 17 refineries throughout the U.S., Canada and the Caribbean, with over 3 million barrels per day in refining capacity.

You can see from the chart above the stock is down more than 34% during a one-year period and is down almost 40% from its high in June of last year. The reason I have chosen to focus on two stocks that have performed so badly is that the forward-looking situation may be ready to improve. Also, both of the stocks have strong operating revenue and are taking steps to shore up their financial situation.

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At time of publication, Manning had no positions, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.