Valero Energy

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Of course, just because BP Capital is natgas and alternative energy-heavy doesn't mean that Boon Pickens' fund is eschewing traditional oil firms. His fund picked up 188,000 shares of Valero Energy ( VLO) last quarter, building up a $5 million stake in the country's largest independent oil refiner.

Valero has the capacity to process more than 2.8 million barrels of crude per day through its 14 refineries, in addition to a massive ethanol business and a 1,000-unit gas station business.

In short, Valero is an integrated oil company without the most profitable part: the exploration and production arm. Because VLO must rely on crude suppliers, it's only able to shave off thin margins for itself through its refining operations. While operating a gas station chain does give Valero some ability to widen its margins (it can convert crude to retail gasoline prices, rather than wholesale gas prices), margins are still quite thin.

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One advantage for Valero is the fact that its refining infrastructure is more advanced than most peers, a fact that gives VLO the ability to take in lower-quality crude for its gasoline. That gives the firm added flexibility when oil prices make profitability difficult, but the advantages are small. Instead, improved worldwide pipeline networks should be a major profitability booster for VLO, as regional pricing differences even out more and the firm can collect a bigger profit per gallon from its low cost Gulf Coast refineries.

Valero is also one of the top holdings at Ray Dalio's Bridewater Associates as of the most recently reported quarter.

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