Valero Energy Corporation (VLO) — I recommended VLO stock as the Trade of the Day on Sept. 9, saying it was a buy under $58 with a two-month target of $67.10. It more than met my expectations, topping at $73.88 in late November. And despite the big sell-off Wednesday, traders who hold shares should continue to do so for even greater gains.
Wednesday’s drubbing was due in large part to volatility in crude prices as a report showed inventories of oil and refined products hit record highs. But there hasn’t been a new refinery built in the United States in over two decades. So as the world’s largest independent petroleum refiner and marketer, Valero is in a unique position to benefit from low oil prices.
S&P Capital IQ Equity Research also notes Valero should benefit from increasing production from shale plays and the Canadian oil sands. Its analysts expect cash flow to exceed capital spending by a wide margin, leading to a free cash-flow yield of about 7.8%. This compares favorably to its peers with a median yield of 5.6%. Capital IQ rates VLO stock a “strong buy” with a price target of $82.
Shares are in a powerful bull market with a bullish support line slightly below the 200-day moving average at $63.83. Three recent buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), support buying VLO stock under $66 with a trading target of $75 for a possible gain of more than 13% in 30 days.
Because market volatility is so high, an open order under $60 could be filled for a bargain basement buy. Note that those who bought in August on a penetration of the bullish support line bought at the lowest price since February.
