Folks, we had a good month in November. We are up about 12% vs flat or slightly down for the other indexes and Valero's typical average return for November of -4.5%. The question
is does it keep going up and if so what are those reasons. As most of you know, I am long Valero and I think it is good from time to time to list the reasons why you own the stock. Here are my 10 reasons and feel free to agree, disagree, or add your own reaons:
1)Retail split in late first quarter/early second quarter. Shareholders get a new stock CST.
2)Two Hydrocrackers projects finally getting completed: Port Arthur starts up this month and St Charles starts up late first quarter/early second quarter. Will generate well over $1 in additional earnings per share.
3)Discounted US shale oil crude giving Valero big advantage. As pipelines get from Cushing to Gulf Coast, LLS will go from a $2 premium to Brent to maybe as big as a $5 discount. Upshot: Valero's Gulf Coast refining system will have cheaper discounts while Valero's Mid-con refineries will lose some of the wide spread discount of Brent-WTI currently at about $22 a barrel.
4)Low natural gas prices. Huge expense for Valero giving it competitive advantage in the world export market.
5)Captial spenditures will drop by about $1 Billion next year allowing Valero to raise the dividend and buy back stock.
6)Stock pays a good dividend and the dividend has gone up the last 2 years
7)Export market strong. So even if US demand stays flat or drops, most of Valero's refineries are on the water allowing them to export refined products. Export market to Mexico, Central America, and South America growing well and diesel to Europe still strong.
8)Valero changing it product slate from about 33% diesel a couple years ago to about 40% diesel in 2013 allowing more profitable margins.
9)Valero's refiners are becoming more reliable as they have made major investments in most of these refineries over the years
10)Significant Atlantic basin refineries have been shut. About a 1 million barrles of capacity have been shut in 2012.
So those are the positives. With any stock, you should also consider any potential headwinds:
1)Signifcant refinery capaciy additions coming in 2013 and beyond. Most in the Middle East and Asia.
2)Does the US stop or highly regulate hydralic fracking reducing the future growth of discounted US crude oil?
3)Does the Keystone get approved or will the anti-business President block it?
4)Does the Government pass more stingent pollution laws/refined product spes forcing refiners to spend billions more upgrading the refiners?
5)God forbid, does Valero have an accident at one its refineries like BP or Chevron?
6)Do we go off the fiscal cliff and go into recession?
You are getting about as bad as Midav and might have to put you on ignore. LLS averaged a $2.15 premium to Brent last year, is averaging about a buck premium this year, and was a $2.58 premium last week.The whole point of the post is that LLS should go lower giving Valero another advantage.
Why don't you contribute something positive to this board? How's your diesel short coming?