Life comes at you fast, as a popular TV commercial says. It certainly has in recent days. That's why it is so important to have an investment strategy for your long-term capital, one that can guarantee you will make money on more than 80% of your trades.
Let's review: First Donald Trump won the presidency, something almost no political experts saw coming. The Dow Jones futures began plunging even before the election was officially called, leading many to speculate that a new bear market was at hand. But now stocks have rebounded sharply and will post large gains for the week.
One sector that is popping champagne corks over Trump's surprise victory is the energy business. Conservative columnists are already calling on Trump to "repeal all the Obama regulations that unnecessarily restrict the production of oil, gas and coal," in order to make America energy independent again.
HollyFrontier Corp. (HFC) is one of the best energy plays right now. Its stock declined earlier this year due to some rough earnings reports. But the Dallas-based petroleum refiner and marketer sees brighter days ahead -- not just because of the dawning Age of Trump, but because of a smart acquisition it just made. Shares fell slightly in Friday trading.
HollyFrontier is one of the industry's best-established companies. The company markets its refined products in the Southwest U.S., the Rocky Mountains extending into the Pacific Northwest, and in other neighboring Plains states -- some of the most attractive markets in the United States.
Each of its refineries has the complexity to convert discounted, heavy and sour crude oils into a high percentage of gasoline, diesel and other high value refined products. It has more room to grow than larger energy companies like Exxon Mobil and Chevron.
HollyFrontier recently made a deal to acquire Suncor Energy's Petro-Canada lubricants business for CAD for about $850 million. This transaction will have a major positive impact on the company's earnings per share and cash flow.
The Petro-Canada Lubricants plant, located in Ontario, is the largest producer of base oils in Canada with 15,600 barrels per day of lubricant production capacity. The facility produces a broad spectrum of specialty lubricants, which are distributed to end customers worldwide.
The acquisition will bring HollyFrontier industry-leading product innovation and R&D capabilities, a global sales and distribution network, and a strong brand that is recognized globally.
With the addition of this business, HollyFrontier will become North America's fourth largest lubricants producer with a capacity of 28,000 barrels per day, or approximately 10% of North American production. Even more importantly, it will diversify HollyFrontier with the addition of a differentiated high margin business with more stable cash flows.
The transaction is subject to regulatory approval, something that may easier to obtain from Donald Trump's Washington than from Barack Obama's.
By the way, the stock is currently yielding more than 5%. This will probably decline as the stock price recovers, but it is nice to have while it lasts.
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