Recommending Western Refining (WNR) again
I recommended this stock three weeks ago at $7 a share. We've now gone up 20%, but there is a lot more upside coming. Basically, while it was just undervalued before, now it is still undervalued, but also has a catalyst... several in fact. In short, here's the bull case on WNR:
1. The hurricane (cause it helps #2)
2. The crack spread
3. regional crack spread divergence.
The crack spread is the key ingredient for a refining stock. This # tells you the companies profit margin per barrel and is the key metric for a refiner. The crack spread has been in the dumps, but whenever it makes a run, the refining stocks go wild. The last time the crack spread took off, WNR doubled in a month. Now, the crack spread has made it's biggest move in a year and the stock is up... merely 90 cents. That's not right, the stock should be way up there after that big of a jump in the spread. In particular the gulf spread has taken off in comparison to the NYMEX spread or East coast spreads. This helps WNR to boost profits more than its competitors. WNR has no gulf coast refineries that will take damage from the hurricane, yet they get to enjoy the rich gulf coast spreads... heaven for them.
Attached is a chart below. Long story short, this stock should see $11 or $12 by next week leading to sizable profits, particularly if you play options as I do. The $10 front-month call options selling at $.45 this evening should rise to $1.50 to $2.50 if $11-$12 is achieved in the wave of Gustav.
Here is the image ID in cast the picture doesn't show up right in the text. http://www.flickr.com/photos/90069426@N00/2804019965/sizes/o/