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After a Brutal 2016, Are CVR Energy's and CVR Refining's Stocks Ready to Rebound?

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Companies in the oil refining business had a tough go of it in 2016, but one company that got hit harder than most others was CVR Refining (NYSE: CVRR) . Not surprisingly, CVR Refining's parent company, CVR Energy (NYSE: CVI) , also saw its stock plummet in 2016.

Like many other refiners, this past year's stock decline isn't as much a fault of the company itself but rather the environment in which it operates. Perhaps that suggests 2017 will vastly improve the outlook for this independent refiner. Let's take a look at the year that was and whether better times are around the corner.

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CVI data by YCharts .

Ready to rocket in 2017?

As much as investors hope that this coming year will be better than the prior one, much of it will come down to market conditions for CVR Refining. If we continue to see weak margins for refining and elevated RIN costs, then we may not see another cash distribution from CVR Refining. It's also worth noting that the company expects to perform some large turnaround activity on one of its refineries this year, which will seriously crimp its already tepid cash generation. That is a double issue for CVR Energy because it can only pay a dividend for so long without cash coming in the door from its subsidiaries.

One idea that Wall Street seems to be enamored with lately is that CVR Energy's largest shareholder -- Carl Icahn -- has been nominated to a special position in the Trump administration to act as an advisor on business regulation. For years, Icahn has railed on the Renewable Fuel Standard. If he were to get his way in this special advisory role, these regulations would get scaled back significantly or even repealed.

The chances of that happening in 2017 seem pretty slim, though. Anyone considering these two stocks would probably be better off ignoring this for at least this year. Also, this is a hypothetical situation that may or may not happen. So for conservative investors, it's probably better to not even consider this when making an investment.

That being said, CVR Refining has proven over time that it is a good operator of its facilities and does have some competitive advantages, despite the challenge of being an independent refiner with significant RIN exposure risk. Likewise, CVR Energy is intrinsically tied to the success of CVR Refining. With shares of CVR Refining trading at 1.3 times tangible book value and CVR Energy trading at 2.3 times tangible book, both are at decent discounts to their five-year trading averages. Refining margins always wax and wane with time; like any other commodity, it's just a matter of when. It may not happen this year, but an investment today in a low-margin environment might pay off rather well when the market for refined petroleum products improves.

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Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.comor on Twitter @TylerCroweFool .

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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