Dan Gross reveals to us the surprising data point that, over the past year, Valero has outperformed Google:
Chart courtesy of MSN Money
That was surprising . . .
Source:
It’s So Fine To Be a Refiner
Who you should really hate when you fill your tank.
Daniel Gross
Slate, Thursday, Sept. 8, 2005, at 2:44 PM PT
http://www.slate.com/id/2125900/
The old adage lives: boring industries outperform the sexies!
Ha ha ha….
This is very interesting, but I am not sure what to make of it. Does it say something about the obscene profits of the energy sector when energy stocks outperform the wild speculation going on with Google’s stock? It could say that the price of gasoline in this country has been artificially low for decades and the energy sector is making up for lost time. Maybe it says that the speculation going on with Google isn’t as “wild” as it seems. Maybe it says that the speculation going on with the energy sector is crazier than it is with Google. I’d love to hear others’ speculation on this.
Especially interesting if you compare their PEs:
VLO: 13.50
GOOG: 91.37
I’d say VLO is going up on valuation. GOOG on speculation.
Two words: refining margins. Another two: operating leverage. Need I really go on?
And, yeah, I’m bitter I didn’t own VLO and TSO — but I was overweight energy, so I’m not all that bitter.
Valero has been buying up refineries at fire sale prices for twenty years. The money they have put into those refineries has set them up to use Heavy Ugly Crude. About 70% or so of their crude is heavy sour crude. It costs them about $2 more to process a barrel of Ugly but, the price difference between sour crude and sweet crude is now $12 or more.
Valero has taken a genuinely visionary path in their industry that hasn’t been appreciated until just the last few years.
VLO – pays dividend.
GOOG – no dividend.
No surprise that VLO is outperforming GOOG and should continue to do so as investors look for income (i.e., dividend yield). I could be worng, though…