Chasing Value: Valero -- when is a downgrade an upgrade?

What can I say, one of my best stocks picks of 2007 has turned into one of my worst of 2008. Valero Energy (NYSE: VLO) the largest independent oil refiner in the United States has experienced shrinking profit margins as oil prices have continued to climb throughout the year.

It was reported in the Associated Press that a Wall Street analyst at Friedman, Billings, Ramsey & Co downgraded his expectations for the major oil refiners Wednesday. In regards to VLO, analyst Eitan Bernstein lowered his price target from $77 to $65.

Analysts are notoriously optimistic and I myself would not hazard a guess picking a number out of thin air given the number of variables to consider, but I would go as far as to say this downgrade makes me laugh.

The stock closed yesterday at $41.25 and is trading down further today around $40. But this is considerably lower then anyones price targets for the stock so perhaps this is a case where the downgrade is actually an upgrade.

My colleague Steven Halpern posted similar sentiments last week Valero (VLO): Ready for a refinery rebound?

This is a company with a price-to-sales ratio of 0.43 and a price-to-book of 1.42 that accompany a P/E of 7 and a yield of 1.41%. I may have been caught in the downdraft of a cyclical stock recommending it last December, but I sure do feel more comfortable recommending to readers that they examine VLO today.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of VLO.