Valero Energy Corporation (VLO): Why This Refiner Is Too Cheap to Ignore

Another way to go is with an oil giant such as Exxon Mobil Corporation (NYSE:XOM), which I love except for the fact that it seems to keep going up and up. Just when I think Exxon Mobil Corporation (NYSE:XOM)’s rally is running out of steam, it seems to break through to new highs regularly, and is now trading very close to its peak during the 2008 oil bubble. Unlike the other two companies mentioned, Exxon only makes 28% of its money from its refining and marketing operations, with the majority (64%) coming from exploration and production operations.

Despite the ever-rising share price, Exxon Mobil Corporation (NYSE:XOM) still seems somewhat cheap, at just 11.9 times this year’s expected earnings. Exxon also has an extremely strong balance sheet, which features more cash than debts. The company has one of the best track records of any in the market when it comes to creating shareholder value, and back in March I wrote an article detailing the merits of Exxon as a long-term investment.

Final thoughts…

While the profitability of Valero Energy Corporation (NYSE:VLO) is highly dependent on the demand for their products and their materials costs, I still think that the risk/reward here is well worth it. I am very bullish on oil in general over the next few years, and one interesting statistic that I keep reading is how world energy demand is projected to increase five-fold over the next four decades. As the total supply of oil continues to decline and global demand gradually continues to rise, it should translate to profits for companies like Valero.

The article Why This Refiner Is Too Cheap to Ignore originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel owns shares of ExxonMobil. The Motley Fool owns shares of CST Brands. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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