Murphy Oil: A play for the U.S. gasoline market rebound

Posted Nov 12th 2009 6:30PM by Joseph Lazzaro
Filed under: Stocks to Buy

Just call Murphy Oil (MUR) a classic low-profile play, which is why I'm reiterating my Buy rating for the company, first recommended on April 29, 2009 at a price of $47.80. If you bought MUR in April, you're up about 27%.

Murphy reported Q3 EPS of 98 cents, roughly in-line with the First Call Q3 EPS estimate of 99 cents, and course Wall Street sold the stock, but just view that pull-back as a Buy opportunity. The reason? The argument here is that the refining sector (85% of Murphy's revenue) is just about at its weakest point, with U.S. gasoline demand likely to rebound in 2010 (although demand growth will be lower than during the previous economic expansion, due to higher gasoline/diesel prices). Murphy operates about 1,150 gas stations in the U.S.

The First Call FY2009/FY2010 EPS estimates for MUR are $3.24 to $5.17. The primary potential qualifier with MUR concerns the recovery in U.S. employment. A failure by the U.S. economy to return to net monthly job gains by May 2010 would definitely weigh on MUR's results: the calculation here is that the economy will record net monthly job gains by March 2010.

Technically, Murphy's stock chart is in an uptrend, but one with above-average volatility. Also, the stock cleared two-year resistance at $63 prior to its recent pull-back.

Stock Analysis: Murphy Oil is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in MUR now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your MUR position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $27.

- -

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: gasoline, MUR, Murphy Oil