In terms of stock price action, oil refiners like Tesoro (TSO) and Valero (VLO) typify the oil refining cycles throughout a given year. I looked back at the last 3 years (2004-2007), and here is what I learnt. Oil refiners like VLO and TSO, bottomed out typically in Sept/Oct. They ran up until June, and then spent 3 months going down. The cycle repeated again in Sept/Oct.
For example, if you bought TSO in the 3rd week of Oct and sold in the 4th week of June the following year, you made approximately 60.3%, 11.1% and 104.5% in 2004, 2005 and 2006 respectively.
If you owned VLO during the same period, you made approximately 96.9%, 17.3% and 45.7% respectively. 2005 seems like a lacklustre year only because of Katrina. Katrina hit the U.S shores in late August, and that triggered a 14.6% and 21.4% move in TSO and VLO shares just on Sept 2nd. I suspect that had those hurricanes not hit us, these stocks would have declined in August and Sept similar to 2004 and 2006.
Now that the history lesson is over, let me get to the point. Its time to buy refiners again. I specifically like Western Refining (WNR), a stock that has made me money in the past. In July, I told readers to take profits on Western Refining, and since then, the stock has dropped some 40% in 3 months, while the broader market is unchanged. While I caught the move from March to July, during the period examined above for VLO and TSO (Oct - June), WNR gained almost 150%.
Given the brief history of the oil run from $30 per barrel to $85, and the performance of the oil refiners during this period, I recommend buying WNR or even VLO and TSO at current levels.
-- Faisal Laljee
Full Disclosure: I do not own VLO, TSO or WNR, but my position can change anytime without notice. I am looking to open a position in WNR soon.