Dwindling crack spreads over the last two quarters have hurt the refiner’s margins — including industry stalwart Valero Energy (VLO). Sensing a bargain, T. Boone Pickens increased his stake in the nation’s largest independent downstream firm by 163%, adding another $2 million to his position.
First, those crack spreads are beginning to widen once again. The sheer amount of oil production is overflowing storage depots and is causing West Texas Intermediate prices to fall versus international standard Brent. That price difference means that margins will be on the uptick at VLO once again. Even more so as Valero has moved to exporting gasoline and other refined products in spades.
Then there is the firm’s pending midstream IPO to consider. The new MLP subsidiary will help VLO realize huge benefits and tax-deferred distributions once it gets cooking.
With a forward P/E of less than 10, investors are getting a huge deal on VLO shares — especially when considering its story is on the uptick. Following Pickens’ lead into Valero could be one of the best plays of the New Year.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.