Valero Energy Corporation (VLO), HollyFrontier Corp (HFC), Kirby Corporation (KEX): These Three Stocks Will Continue to Surge During the Shale Revolution

Increased demand for barge operators

As the infrastructure build-out slowly develops, gas producers have turned to trucking, rail, and even shipping. Kirby Corporation (NYSE:KEX). is the largest U.S. inland and coastal tank barge operator. The company derives two-thirds of sales from such businesses of which almost half is oil or other refined petroleum products. Shipping excess crude feedstock along with peak refining utilization rates is a boon to profits for this company. They have a market share in excess of 25% and face limited competition thanks to U.S. regulations. Earnings-per shared advanced 12% in the most recent fiscal year and management expects similar results this year. The stock isn’t cheap as evidenced by the price-to-earnings ratio, but a re-rating may be in store if fleet utilization rates are persistently above 90% as the shale revolution unfolds. The company also benefits from overall favorable economic conditions and cheap shale gas is a tailwind to overall U.S. economic growth.

KEX PE Ratio TTM data by YCharts

The Foolish bottom line

Shale gas presents compelling investment opportunities over the coming decade. Investors should look past the exploration and development companies, which have to deal with supply and demand factors that are often outside their control, and instead favor the beneficiaries of cheap gas which include refiners, barge operators, and chemical produces to name a few. I especially favor the refiners and think a re-rating will develop as they are in the early innings of a potentially long secular surge in earnings and share prices.

The article These 3 Stocks Will Continue to Surge During the Shale Revolution originally appeared on Fool.com and is written by Justin Carley.

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