Four Oil Refiner Investments to Buy for Income Despite Putin’s War

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Four oil refiner investments to buy for income offer a fountain of flowing opportunities as the sector enters what BofA Global Securities calls a new “golden age,” despite Russia’s President Vladimir Putin’s invasion and continued war with Ukraine and its people.

The four oil refiner investments to buy feature two stocks and two broad commodity funds that should rise amid multiple catalysts. U.S. oil refiners hold structural cost advantages compared to international rivals and are likely to ascend from an expected post-COVID recovery in demand and refinery closings that reduce supply and enhance margins.

BofA Global Securities recently released a research report that described a new regional ‘Golden Age’ for U.S. oil refining. Valuation, aided by sustainable free cash flow (FCF) that measures the cash left after a company pays its operating expenses and capital expenditures, is the basis for that optimistic view. BofA added.

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Free cash flow yields are at their highest levels in a decade to shift momentum toward oil refiners, BofA reported. Recent geopolitical events, such as Putin’s persistent attack of Ukraine, put a spot light on the consequences of underinvestment in production, the investment firm wrote.

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Four Oil Refiner Investments to Buy Boosted by Economic Sanctions Against Russia

The shelling of hospitals, schools, residential areas, churches, nuclear power plants, oil refineries and a theater used as a shelter became a precursor to barbaric rapes, torture and outright executions of Ukrainian civilians that caused many countries to put economic sanctions on Russia. Among those sanctions is severing ties with Russia as a provider of oil or natural gas, or significantly slashing such trade.

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Russia’s losses due directly to Putin’s policies are leading to potential gains for Western oil refiners that are trying to fill the void for European customers seeking to wean themselves away from purchasing energy from Russia that Putin then uses to fund his war on Ukraine. As the old adage goes, there always is a bull market somewhere. One of the latest is in the oil patch.

And one of the biggest large-cap energy companies in the market is Exxon Mobil Corp. (NYSE: XOM), a recent addition to the recommendations in the Fast Money Alert trading service led by seasoned stock pickers Mark Skousen, PhD, and Jim Woods. The integrated oil and gas company explores for, produces and refines oil worldwide.

Mark Skousen, a descendant of Benjamin Franklin, talks to Paul Dykewicz. Skousen leads the Forecasts & Strategies newsletter, along with the Five Star Trader, Home Run Trader, TNT Trader and Fast Money Alert services.

Exxon Mobil Leads the Four Oil Refiner Investments to Buy Despite Putin’s War

Irving, Texas-based Exxon Mobil produced an average of 2.3 million barrels of liquids and 8.5 billion cubic feet of natural gas per day in 2021. At the end of 2021, its reserves totaled 18.5 billion barrels of oil equivalent, including 66% from liquids. The company is the world’s largest refiner with a total global refining capacity of 4.6 million barrels of oil per day to rank as one of the world’s largest manufacturers of commodity and specialty chemicals.

“Size does matter when you are talking about oil and gas companies,” Skousen and Woods wrote to their Fast Money Alert subscribers. “What also matters is that oil prices have soared due to a combination of robust demand dynamics and constricted supply caused in part by Russia waging war against Ukraine.”

Paul Dykewicz meets with Jim Woods, who leads the Successful Investing and Intelligence Report investment newsletters, as well as the Bullseye Stock Trader, High Velocity Options and Fast Money Alert trading services.

With no end for Putin’s war in sight, the “smart money” is betting on higher energy prices, and even smarter money is buying XOM, Skousen and Woods wrote. The proof comes from a 3.57% rise in the last week, a 49.03% jump so far this year and a 53.86% surge in the past 12 months.

Chart courtesy of www.stockcharts.com

Another investment guru who recommends Exxon Mobil is Bryan Perry, head of the Cash Machine investment newsletter, along with the Premium Income, Quick Income Trader, Hi-Tech Trader and Breakout Options Alert advisory services. Perry, who has a track record for profitably recommending dividend-paying oil and natural gas companies, also is known for finding high-income investments.

Bryan Perry heads the Cash Machine newsletter.

Exxon Mobil offers a current dividend yield of 4%. In addition, BofA has put a $120 price target on the stock.

Money Manager Picks One of Four Oil Refiner Investments to Buy for Income 

A third investment professional who is recommending Exxon Mobil is Michelle Connell, a former portfolio manager who now is president of Dallas-based Portia Capital Management. Connell also told me she likes Valero Energy Corp. (NYSE: VLO), of San Antonio, Texas, offering a current dividend yield of 3.4%.

Valero is San Antonio’s largest publicly traded company and is among the world’s largest independent petroleum refiners. It also claims to be North America’s largest producer of renewable fuels, as well as the world’s second-largest producer of sustainable diesel.

Michelle Connell, CEO, Portia Capital Management

Connell said her rationale for recommending Valero includes:

  • Its status as the second-largest refiner in the United States.
  • U.S. refiners wield cost advantages compared to foreign competitors in the European Union and elsewhere.
  • The company’s natural gas used to refine oil is the cheapest in the United States.
  • Analysts recently boosted VLO earnings estimates and price targets.
  • The stock’s potential 12-month upside of 15-20%. BofA set a $140 price target.
  • A dividend yield of 3.4%.

“The fundamentals that drove strong results in the first quarter, particularly in March, continue to provide a positive backdrop for refining margins,” said Valero’s Chairman and Chief Executive Officer Joe Gorder, when the company reported its latest financial results.

Chart courtesy of www.stockcharts.com

BofA Recommends Two of the Four Oil Refiner Investments to Buy

BofA also recommends VLO but cautions downside risks to its price objective include the company’s heavy weighting toward “sour crude.” As light-heavy crude differentials narrow, the benefits of a more complex refinery may dim and delay return on investment, BofA continued.

Plus, the company is vulnerable to a dip in refining margin, BofA opined. If demand for refined products is weaker than expected, or if oil prices stay high, margins could be pressured.

Other risks include potential increases in operating expenses, capital expenditures and taxes. Another risk stems from the uncertainty of whether tax reform will be passed.

Potential outperformance of the price target for VLO could come from higher-than-expected spreads and stronger-than-forecast gasoline demand, BofA wrote.

Non-Dividend-paying PBF Energy Does Not Qualify as One of Four Oil Refiner Investments to Buy

PBF Energy Inc., (NYSE: PBF), of Parsippany-Troy Hills, New Jersey, is one of the largest independent petroleum refiners and supplies unbranded transportation fuels, heating oil and petrochemicals.

BofA gave PBF a $35 price objective, based on an assessed discounted cash flow (DCF) value that treats the assets as annuities after deducting maintenance capital. The investment firm used a long-term Gulf Coast 321 crack spread in its benchmark assumptions of $11.50/bbl., a long-term crude differential of $3.50, a weighted average cost of capital (WACC) of 9.3%, a zero terminal growth rate and a 22% corporate tax rate.

The potential of PBF to outperform PBF’s price objective could include crude spreads and crack spreads staying above BofA’s expectations, higher-than-expected earnings and improved valuation. Downside risks to meet BofA’s price objective may include if margins and crude spreads compress faster than forecast, hurting earnings and share price.

Chart courtesy of www.stockcharts.com

Pension Fund Chief Picks Two of Four Oil Refiner Investments to Buy

Overbought oil stocks are a risk faced by investors amid their surging prices so far this year, said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. Investors are worried that monetary tightening by the Federal Reserve and weakened growth in China due to surging COVID-19 cases and lockdowns will cut global growth and slacken demand for energy.

“My top pick remains the ETF Energy Select Sector SPDR (XLE),” said Carlson, who also heads the Retirement Watch investment newsletter. “It tracks the S&P 500 energy sector, which is the top-performing sector in the S&P 500 in 2022 after years of underperforming the rest of the index.”

The ETF holds 21 stocks and three other types of investments. About 76% of the fund is in its 10 largest positions. Exxon Mobil (NYSE: XOM) was almost 23% of the fund, and Chevron (NYSE: CHX) was just over 21% of the fund. Other major holdings include EOG Resources (NYSE: EOG), Schlumberger NV (NYSE: SLB) and Conoco Phillips (NYSE: COP).

The diversified energy fund holds a portfolio of refiners, exploration and production (E&P) stocks, as well as companies engaged in two or more activities. XLE is up 60.58% in the last 12 months, 46.42% for the year to date, 17.94% in the past three months and 4.40% in last week. The gain in the past week shows the fund stays on the ascent.

“As long as economic growth remains solid, demand will exceed supply and support high prices for energy products,” Carlson said.

Even though companies are working to increase production, it takes a “long time” to do so with new sources or to restore old ones that have been shut down, Carlson said.

Chart courtesy of www.stockcharts.com

MLOAX Joins Four Oil Retailer Investments to Buy 

A fairly aggressive fund is Cohen & Steers MLP & Energy Opportunity (MLOAX), Carlson said. It looks for companies in exploration, production, gathering, transportation, processing, storage, refining, distribution, or marketing of oil, natural gas and other energy sources.

The fund’s largest holding is Enbridge Inc. (NYSE: ENB), which has an extensive pipeline network that transports natural gas and other energy products. The fund’s second-largest holding is Cheniere Energy Inc. (NYSEAMERICAN: LNG), which exports liquefied natural gas (LNG). Other top holdings are the Williams Companies (NYSE: WMB), TC Energy (NYSE: TRP) and Energy Transfer LP (NYSE: ET).

The fund has 56 positions, with 55% of the fund in the 10 largest positions. MLOAX is up 33.25% in the past 12 months and 21.93% for the year to date. It also has climbed 12.55% for the past three months and 0.49% in the last week.

As an open-ended mutual fund with several share classes, MLOAX should be assessed by investors based on which share class has the lowest cost. A good source for that information would be stock brokers.

Chart courtesy of www.stockcharts.com

COVID-19 Infections Affect More than Half the U.S. Population

COVID-19 cases and hospitalizations have risen about 10% in the last week. The U.S. Centers for Disease Control and Prevention (CDC) also has reported more than 50% of the U.S. population, including most children, have been infected with the coronavirus.

In China, lockdowns have occurred with at least 373 million people, as well as weighed on about 40% of the country’s gross domestic product (GDP). A key effect is continued disruption of the world’s supply chain for many products, including oil.

Most of Shanghai’s 25 million residents remain in lockdown, as the Chinese military and additional health workers have been dispatched there to aid in the response. Shanghai, home to the world’s largest port, has strained to unload cargo due to strict regulations that have caused shipping containers to stack up. Frustrated Shanghai residents, in some cases, have taken videos have went viral to show people screaming from high-rise buildings about needing food, but the government has been cracking down on the posting of such expressions of frustration.

Also in China, young children with COVID-19 have been separated forcibly from their parents, fueling public discord, as Chinese leaders seek to stop the spread of a new, contagious subvariant of Omicron, BA.2. The variant also is causing a new wave of infections in European nations that include Germany, the Netherlands and Switzerland.

U.S. COVID Booster Shots Exceed 1 Million and Deaths Approach 1 Million 

COVID-19 deaths worldwide neared 6.25 million to total 6,248,986 on May 6, according to Johns Hopkins University. Cases across the globe have jumped to 516,913,818.

U.S. COVID-19 cases, as of May 5, 81,777,560, with deaths rising to 997,267. America has the dubious distinction as the nation with the most COVID-19 cases and deaths.

Also as of May 5, 257,995,280 people, or 77.7% of the U.S. population, have obtained at least one dose of a COVID-19 vaccine, the CDC reported. Fully vaccinated people total 220,022,176 or 66.3% of the U.S. population, according to the CDC. America also has topped a key milestone by giving a COVID-19 booster vaccine to 101.2 million people.

The four oil refiner investments to buy for income offer energy stocks and funds that show signs of paying investors to stay patient amid current volatility after a 0.5% rate hike by the Fed on May 4. Investors willing to buy after the assets have risen significantly in value could be treated to further gains, even if the journey has ups and down along the way.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

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