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I've upgraded independent refiner Valero Energy (VLO) to buy from the hold rating issued on November 3, 2009, at a price of $1812. Here's why:Valero's stock chart has reversed, after holding support at the $15-$16 level. VLO was first recommended with a Buy Rating on April 20, 2009, at a price of $20.08.
Long-term, VLO has the economies of scale and proficiency to win where others have failed in the refinement of lower-qualiy oils. Short-term, Valero, like other refiners, has been hurt by the sluggish U.S. gasoline sales, due to the U.S. recession, which has triggered more than 7.6 million lay-offs, many of them motorists.
The First Call FY2009/FY2010 EPS estimates for VLO are a loss of $1.30 to a profit of $1.25.
Further, while increases in vehicle fuel efficiency will serve as a headwind, the addition of about 1.5-2.0 million U.S. jobs in 2010 should counteract that, increasing gasoline demand, and improving refining margins.
Technically, as noted, Valero's stock chart appears to have reversed, and a double bottom supports that stabilized view. However, VLO will encounter psychological resistance at $20.
2010 Outlook: Valero Energy is a long-term play. Don't buy VLO if you're looking to close your position by the end of 2010, as the 1-year risk/return is not favorable.
Stock Analysis: Valero Energy is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in VLO 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 50% of your VLO position before March 2010. Sell/stop loss if you were to buy shares in this company: $11.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
The First Call FY2009/FY2010 EPS estimates for VLO are a loss of $1.30 to a profit of $1.25.
Further, while increases in vehicle fuel efficiency will serve as a headwind, the addition of about 1.5-2.0 million U.S. jobs in 2010 should counteract that, increasing gasoline demand, and improving refining margins.
Technically, as noted, Valero's stock chart appears to have reversed, and a double bottom supports that stabilized view. However, VLO will encounter psychological resistance at $20.
2010 Outlook: Valero Energy is a long-term play. Don't buy VLO if you're looking to close your position by the end of 2010, as the 1-year risk/return is not favorable.
Stock Analysis: Valero Energy is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in VLO 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 50% of your VLO position before March 2010. Sell/stop loss if you were to buy shares in this company: $11.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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