One of the few sectors to do well in this market is the oil refineries. Huge swings in price destroyed this group’s value in 2008. Stocks of oil refiners fell by 70% or more. In 2009, it is a different story.
Crude prices have been trading in a narrow range. As such making money by refining oil is easier. Given that the economies around the world are deteriorating, crude price stability is a necessary ingredient for the future of the refineries.
Tesoro Petroleum (TSO) is one of my favorite names in the group. With the decimation of 2008 hitting TSO particularly hard, I made the stock one of my Top 10 Stocks for 2009. The stock is one of a few that have delivered positive returns thus far in 2009.
On Friday, the company announced fourth-quarter earnings that beat expectations. Unfortunately, the market reacted negatively to news that the company would be taking production offline to correspond to decreases in gasoline demand.
No matter that gasoline demand is actually showing some signs of life today. Granted the economy is in the dumps, but the worm is beginning to turn. As such, investors can use the big sell-off in TSO to acquire a position in a stock that I expect to be a big winner before this year is over.
During the fourth quarter, a time when oil prices began to stabilize at or near current levels, Tesoro generated a profit of $137 million or 99 cents per share. Analysts were expecting a profit of $.91 per share.
With a shaky market, traders took this news as an excuse to lock in profits. There is no way the company can continue at this pace with a deteriorating economy. Such a view is very short sighted.
Demand is artificially low as a result of a consumer that is looking more and more like a deer in headlights. The frozen nature of the economy is hurting all sorts of business including Tesoro.
Eventually the economy will recover and with it demand will rise again. In small ways we are already seeing that occur. The move today does not change my opinion of TSO in any way.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
