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Valero Energy Corp (NYSE:VLO): A Bullish Investment Perspective

We came across a bullish thesis on Valero Energy Corp (VLO) on ValueInvestorsClub by Alejo Velez. In this article, we will summarize the bulls’ thesis on VLO. VLO’s stock was trading at $151 when this thesis was published, vs. a closing price of $137.02 on November 12.

VLO is one of the dominant leaders in the global refining industry which comprises complex refineries in the United States and the United Kingdom. With time, VLO has posted high returns despite the volatility of the oil industry. The company has been compounding at 15.5% annually since its IPO in 1997 and its dividend has grown by 15%, helping shareholders even through downturns.

Recently, the energy sector’s transition to electric vehicles (EVs) threatens to reduce oil demand, with an expected decrease of 30-50% by 2050. Although this has its demerits, VLO has been able to adapt by taking advantage of the growing scarcity of refining capacity around the world.

Giant players such as Shell and BP have reduced the number of refineries, with 4.5 million barrels per day in capacity being shut down between 2020 and 2023. It could also offer the potential for stronger improvement in refining margins than the reductions in demand, which is a favorable picture for VLO’s successful, low-fixed-cost refineries.

VLO’s position as one of the largest global refiners is hard to replicate, as it boasts a high average Nelson Complexity Index (NCI) of 11.8. The replacement cost of the assets of each refinery is incredibly high, and it would cost approximately $70 billion to $118 billion to rebuild VLO’s current assets, emphasizing their substantial intrinsic value.

The company seems undervalued and has an opportunity to generate high double-digit returns in the medium term since its stock is 35% below its fair value. VLO’s dividends and buybacks yielded a total return of about 7.4% per annum, further underlining its friendly shareholder approach.

Risks such as the recent decline in the discount of heavy crude and the escalating pressure on fossil fuels regulation remain. However, a top-tier refiner with good cash flow generation potential like VLO is a good bet. Likewise, the expectations of steady demand for oil, more frequent refinery turn-offs, and slow new capacity are good signals.

While we acknowledge the potential of VLO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VLO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: Stavros Tousios has no positions in the aforementioned stocks.

AI Fire Sale: Insider Monkey’s #1 AI Stock Pick Is On A Steep Discount

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Here’s why this is the prime moment to jump on the AI bandwagon:

Exponential Growth on the Horizon: Forget linear growth – AI is poised for a hockey stick trajectory.

Imagine every sector, from healthcare to finance, infused with superhuman intelligence.

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This isn’t a maybe – it’s an inevitability.

Early investors will be the ones positioned to ride the wave of this technological tsunami.

Ground Floor Opportunity: Remember the early days of the internet?

Those who saw the potential of tech giants back then are sitting pretty today.

AI is at a similar inflection point.

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Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.

AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.

The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.

As an investor, you want to be on the side of the winners, and AI is the winning ticket.

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A New Dawn is Coming to U.S. Stocks

I work for one of the largest independent financial publishers in the world – representing over 1 million people in 148 countries.

We’re independently funding today’s broadcast to address something on the mind of every investor in America right now…

Should I put my money in Artificial Intelligence?

Here to answer that for us… and give away his No. 1 free AI recommendation… is 50-year Wall Street titan, Marc Chaikin.

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But what Marc’s most known for is his award-winning stock-rating system. Which determines whether a stock could shoot sky-high in the next three to six months… or come crashing down.

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And is still used by hundreds of banks, hedge funds, and brokerages to track the billions of dollars flowing in and out of stocks each day.

He’s used this system to survive nine bear markets… create three new indices for the Nasdaq… and even predict the brutal bear market of 2022, 90 days in advance.

Click to continue reading…