Refinery stocks have been in a market sweet spot for some
IBD's Oil & Gas-Refining/Marketing industry group
outperformed the Nasdaq and the S&P 500 in each of the past
four years. So far this year, the group is up 18% vs.
mid-single-digit gains for the major stock indexes.
Three things are currently helping
First, no refinery has been built in the U.S. since 1976.
Although existing refineries have expanded capacity sharply
during that period, competition would be more intense if
refineries had been added in the U.S.
So on balance, existing refineries and their profit margins
benefit from the lack of construction.
Second, the spread between West Texas Intermediate and Brent
crude oil also helps refiners. In intraday trade Tuesday, Brent
was at $118.15 a barrel vs. $97.42 for WTI.
When U.S. refiners can get crude oil for processing at a huge
discount to international prices, profit margins rise.
Third, the price of crude oil has stayed in a rolling range
the past two years. The highs generally have been around $100 to
$115 a barrel and the lows $75 to $85.
Since crude oil is a cost for refineries, low or stable oil
prices are better for profits.
Two refinery stocks appeared in Tuesday's Big Cap 20 screen.
Both pay dividends, and so they may be of interest to income
Marathon Petroleum (
) reported a 6.5% pretax margin last year, up from the 1.5% to 3%
range of the previous four years.
Earnings grew 45%, 273% and 46% in the past three years.
However, the Street expects only 3% growth in 2013.
The current annualized dividend yield is 1.7%.
Pretax margin forPhillips 66 (
) was 4.4% last year, up from less than 1% in previous years.
EPS leapt 55%, 390% and 46% in the past three years. Analysts
expect EPS to slide 11% this year.
The dividend yield is 1.9%.
The slower growth in 2013 appears to be tied to the law of big
numbers. It's hard for a company to follow its own big
Marathon and Phillips 66 are on the wild side in earnings
stability. The five-year Stability Factor is a worst-possible 99
for both stocks.