I’m afraid you caught me in a bit of a pump. I’m just an old value investor who looks for companies with good fundamentals that appear to trade far below their intrinsic values. I don’t know much about the refinery business. Some of the guys on this board know a lot more than I do, like Mario, bsuryn, precaud, and others, and some guys that have worked for refineries.
As for the low PE, I suspect refineries in general will always sell for low PEs because of the volatility of their margins. It’s either boom or bust. Gasoline is a commodity, with no difference between one refineries product and another. The problem is exacerbated by the enormous capital expense of building a refinery. Nobody wants to build a bazillion dollar refinery and lose money because of the whims of price of oil or gasoline. I suppose that is why CVX and COP are divesting themselves of some refineries.
Most of my stocks are big boring divvy paying companies like INTC, KO, XOM, all the household names which I’ve owned for many years. But I do have a space in my portfolio for speculative, usually short term investments like HFC. I’m retired and it keeps me busy.
My speculative investments must meet certain qualifications, such as strong cash and working capital, low debt to worth, cash flow more than sufficient to cover current portion of term debt, annual capital expenditures and return on investment. HFC has all these qualities, although the merger of Holly and Frontier made analysis difficult. A significant portion of last quarter’s profits may have been buried in the accounting for the merger. The recognition of deferred income, gain on sale of assets, etc. may have made significant contributions to the bottom line. Whether last quarters huge profit was the result of an accounting windfall, or is a indication of things to come remains to be seen.
S&P maintains a strong buy and Motly Fool gave it a strong buy yesterday. The stock is down today, but so are most of the other refineries. I have a sell target at 34, but if I get caught on this I will just hold it. How many other companies like this are out there are selling for a little over 1 x book and 2 x working capital? And, they make gasoline, which everybody needs.
I added 2 biotechs, ARNA + ACAD at 1.59 + 1.55 last week and both are up. Both have drugs in phase III trials and zacks gave them a 1 ranking and navallier had them at a 3 ranking. Speculative stocks and am hoping at least one of them gets approval this year. Added HAL + NUAN today. I'm kicking myself for not picking up NUAN last week at 27.60. I put in an order for 27.50 that never covered. I too own INTC + unfortunately HPQ.