Blog > Featured Video > Blog article: Top Analyst picks Valero (VLO:NYSE) as Best Oil Stock to Buy Now
 | Email This Article Email This Article  | 

Top Analyst picks Valero (VLO:NYSE) as Best Oil Stock to Buy Now

Posted June 28, 2008

Top Analyst picks Valero (VLO:NYSE) as Best Oil Stock to Buy Now

Top investment analyst Todd Schoenberger pegs the upside of crude oil prices at $175 by August… and recommends Valero Energy (VLO:NYSE), an oil-related company every investor should buy now, independent of where prices are heading. Click here to join…

by Laura Cadden

Baltimore — (TFN): Despite temporary pullbacks, crude oil prices are again setting new historic highs. Some economists look at additional demand from the booming Indian, Chinese and Arab economies as the cause for increased prices. Others consider rampant speculative activity by funds and institutions to be the driving force.

My guest today is Todd Schoenberger, Market Analyst and Editor Emeritus of Diligent Investor. Welcome back to the show, Todd. So tell me. Where do you see oil prices heading?
todd schoenbergerTodd Schoenberger: No doubt, Laura, oil will hit $175 a barrel by the end of August mainly on supply and demand, Economics 101. That’s the primary reason for it.

Laura Cadden: So you don’t see that there’s any other factors that are driving this?

***Watch the video interview!

Todd Schoenberger: Well, there are a couple of other factors; some ancillary factors. For example, hurricane season. Clearly we haven’t had a major hurricane in this country hit our shores in the past three years. So statistically, yes, something is expected to happen this year and this summer. That’s one factor.

Number two is that the geopolitical concerns that we’re having right now clearly in the Middle East. If you have Tehran that even threatens to shoot any type of a scud missile into Jerusalem, it immediately causes a spike in crude oil prices usually by, $15 to $20 a barrel.

Third, it’s an election year. Clearly, there’s going to be talk about everybody would like us to do offshore drilling. It’s not going to happen right now. Constituents may want it. They just want lower gas prices. Yet again, they don’t want these unsightly oil wells out in the Gulf so chances are that’s not going to happen.

Laura Cadden: Well speaking of the government, the proposed windfall tax for profitable oil companies just of course did not pass by a small amount. Do you think large oil companies are still worth buying even at their current price levels?

**********

The Urgent Steps You Must Take Now to Survive – and Prosper – from The Greatest Fuel Revolution in History

A slew of factors are lining up to make this the worst energy crisis in 35 years, possibly ever including:
• China, India, Russia, and Brazil have tripled their oil consumption in the last five years as their economies boom.
• U.S. crude oil consumption is expected to increase at the rate of 1.2 million barrels per day in 2008.
• Summer “driving season” in the U.S. is here, pushing demand even higher. But this time drivers are facing $4+ a gallon at the pumps… a record high.
Yet a short list of investors will use these very same facts to turn every $5,000 investment into $27,000… find out how you could be one of them.

**********

Todd Schoenberger: Absolutely and here’s why. Because higher gas prices actually will increase research and development departments of these big oil companies. Take, for example, the Chevron-Valero energy deal that happened a few years ago. As a result of oil prices being in the mid-80’s at that point, they were able to spend more money looking for bigger supplies of crude, some 250 miles off the coast of New Orleans in the Gulf of Mexico.

As a result, that’s going to increase supplies. The problem is is that we will not actually see the positive results of the increase in supply probably for another three, four or five years. However, this is going to help bigger oil companies to devote more exploration activities to try to find bigger supplies. So yes, I do think it’s a fine time to invest in big oil companies.

Laura Cadden: Well, about oil exploration. It’s been increased. Of course the prices of oil companies are increasing, yet a lot of the oil services stocks have not kept up with these increased stock prices.

Todd Schoenberger: It does seem that way. Take a look at Valero, for example. It’s one of my favorites. The difference there though is that Valero is a refinery. They’re not a distributor. They’re not out there actually getting this oil. They’re not exploring for more oil. They can set up big deals with big oil companies, but realistically they’re not the ones that are actually coming up with the crude out of the ground. So as a result that’s their primary job—refining.

Now, here’s the trick though. You want to find oil service companies that can actually refine different varieties of crude. For example, Valero is the largest refiner here in North America, but they’re the largest refiner for heavy sour crude; the type of crude that’s actually found in Venezuela.

Whereas in the Middle East you have light sweet crude. It’s obviously a lot cheaper to refine, but the refiners that have a specialty, a knack, those are the ones that are going to be winners down the road.

laura cadden smart tradingLaura Cadden: Now you were – to step aside for a moment – one of the first to recommend China Life when it IPO’d in the United States. What do you make of the collapse of the Shanghai Stock Exchange? And are there Chinese oil related companies that you’re currently following?

Todd Schoenberger: Well, I’ll answer the first question for you. I would have to say no, I am not at all upset about what’s happening in Shanghai. Clearly the market has taken its hit of recent. However, there’s a couple of reasons for that. One, there’s a concern for exports that are leaving China, mainly because of the slowdown in the U.S. and the European economies. If those economies are slowing down, then they can’t buy those goods that are actually being produced in China. That’s a big issue.

Second issue is really inflation. They have an inflation rate of 7.7 percent in China right now. That’s a big problem there because remember, to invest in the Shanghai stock market, you actually have to be a citizen of China.

So if you’re a saver in China you have two options. You could put your money into a low interest yielding savings account that clearly is going to be quickly eroded by the high inflation rate. Or you put your money into the Shanghai stock market. That is where a lot of investors are going – the Shanghai stock market.

But once things turn around from a global perspective, yes, you will see things improve in Shanghai, as well as the other foreign exchanges. So I’m not at all concerned about it. As a matter of fact if anything, I would say this is a terrific buying opportunity.

Laura Cadden: And how about any Chinese oil related stocks?

Todd Schoenberger: With Chinese oil-related stocks, I would be more cautious — or more inclined to look in some of our domestic oil service related companies. Here’s why.

Take a look at Valero Energy (VLO:NYSE). Valero just recently sold another one of its refiners. This is a company that has five refiners on the block. They have a new CEO that just took over in December of 2007. He is already saying, look, I want to make Valero into a smaller company. Well, Valero ten years ago was out buying these refineries and now they’re worth a ton of money. So look for the Chinese who is the second largest consumer of oil –- the U.S. is first –- look for them to actually be purchasing some of these refineries because they’re thinking look, I could take some of this oil, I can refine it and then bring down my own costs for my own citizens.

Don’t be surprised if that happens some time in the next couple years.

Valero is actually down three and a half percent year-to-date right now, mainly because they’re not doing anything else. All they do is refine heavy sour crude and as a result their profit margins are being pushed down. But once you start seeing them sell some of these refineries, that’s where the big money is and they will be making a boat load of money just in royalties over the next ten and 20 years. So I’d highly recommend it.

Laura Cadden: And what do you think about like the smaller domestic oil exploration companies. Things like Royale or Rex Energy?

Todd Schoenberger: My concern there is that if you are that small, you need to partner with a big-time company. You have to have an Exxon, a Chevron or a Conoco Phillips in your back pocket. Valero has a great deal with Chevron. So, yes. I would have to say if you’re a smaller company, if they actually have some partnerships that they’re looking to establish with the bigger oil companies and they can share in the expense to explore for oil, then yes. I think those might be companies you might want to look at.

****Make sure you sign up for our FREE TFN News Feed for breaking news, special reports and new financial videos. Sign up through your favorite reader here. Or, if you prefer, have the feed delivered to your email.


Related Articles


Posted by Laura Cadden · Filed Under Featured Video, Oil and Energy, Videos 

Comments

close Reblog this comment
Powered by Disqus · Learn more
blog comments powered by Disqus