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Valero Sucks

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June 04, 2009 – Comments (5) | RELATED TICKERS: VLO

A few months ago I gave a CAPS thumbs up to Valero (VLO) thinking that its stock was beaten down enough to make it a reasonable value and that crack spreads would improve.  Let me tell you something, boy oh boy am I glad that I closed my pick a few days ago.

Refiners suck.  They lose money when the price of oil goes up.  They lose money when the price of oil goes down.  I hesitated to close my pick in the red, but I saved my CAPS portfolio a lot of pain by doing so before the stock fell nearly 20% yesterday.

I realize that no new refineries have been built in the U.S. since 1902 or something like that, but refineries are being built in other areas of the world and the gasoline and other products that they create can be imported to the U.S. if it is economically viable.  Refiners are being squeezed as the price of oil rises while the demand for gasoline remains flat at best.  And look at the headwinds that refiners face in the coming years, the government is encouraging us to use less gas by raising the fuel economy standards, plug-in vehicles may actually become viable at some point, on and on and on.

Valero's management is terrible.  Rather than issuing a nice dividend or investing in their business, over the past three years they bought back 141 million shares at a total cost of $8.76 billion some for as much as $68.80 per share.  Well guess what, now the company needs cash.  Surprise surprise.  It announced yesterday that it will issue 40 million new shares at $18.

In search of a way to destroy even more shareholder value, the geniuses at Valero even branched out into ethanol by purchasing some of the plants of the bankrupt company Verasun.

This company is so messed up and its industry is so bad that I won't even touch its corporate bonds.

Deej

5 Comments – Post Your Own

#1) On June 04, 2009 at 7:50 AM, TMFDeej (99.22) wrote:

P.S. Mission complete.  This post pushed the last of the annoying spam off of the CAPS blogs front page.  Hooray.

Deej

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#2) On June 04, 2009 at 11:57 AM, WillSurfForFood (68.89) wrote:

I did the same thing with Valero, it is the only refiner in my CAPS portfolio. And I agree with you that refiners in general suck. The stat about no new refineries being built for a long time is a bit misleading. It is true but a lot of refining capacity has been added to existing refineries, it is cheaper to do that way so refining capacity has increased. It has also increased recently in other parts of the world. Also if we haven't reach peak oil production we are not far from it so it is unlikely that refiners will ever do that well again, at least not for extended periods of time. The only thing that would help them out in the short run is a nasty hurricane season. At this point in time investing in refiners is a little bit like investing in airline companies, sure it is possible to make a little money if you are really good or a bit lucky but in general it is a difficult business to turn a profit. I would not touch refiner with real money. 

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#3) On June 04, 2009 at 12:03 PM, XMFSinchiruna (27.20) wrote:

Hey Deej, did you catch my article on the Valero announcements?

http://www.fool.com/investing/dividends-income/2009/06/03/valero-taps-shareholders-with-a-sledgehammer.aspx

Perhaps you woke up missing an ear? ;)

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#4) On June 04, 2009 at 12:39 PM, TMFDeej (99.22) wrote:

I haven't seen it.  I'll definitely take a look.  Thanks for the link Sinch.

Deej

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#5) On June 05, 2009 at 2:18 PM, goldminingXpert (29.65) wrote:

WNR is an awesome company, I'm nibbling here.

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