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Energy Stocks Are Falling Behind the Market. 3 Refiners Look Promising. -- Barrons.com Energy Stocks Are Falling Behind the Market. 3 Refiners Look Promising. -- Barrons.com Dow Jones By Avi Salzman Although energy stocks as a group have been lagging behind the broader market, oil refiners have outperformed the sector in recent weeks. One analyst says that could continue, given tailwinds from new shipping-fuel regulations and other factors. Refiners are down 2% in the past three months, while the energy sector overall, as tracked by the Energy Select Sector SPDR exchange-traded fund (XLE), is down 9%. Goldman Sachs analyst Neil Mehta thinks investors should consider buying Marathon Petroleum (ticker: MPC), Phillips 66 (PSX), and Valero Energy (VLO). For one thing, refiners tend to do well at the end and the beginning of the year, with a positive average performance in five of the six months between October and March in the past 15 years. Mehta expects new U.N. regulations known as IMO 2020 that lower the maximum sulfur content of shipping fuel to 0.5% from 3.5% will boost refiners as well. The rules go into effect on Jan. 1. U.S. refiners should benefit as ship operators switch from bunker fuel to lower-sulfur alternatives, he argues. Already, so-called crack spreads -- the differential between the cost of crude oil and the price of the products that can be produced from it -- are widening. Moves in the futures market point to favorable pricing in coming months. Mehta thinks that each company also has ancillary businesses that could help its earnings. Marathon -- his favorite stock in the group -- owns a chain of gas stations that should "perform well in a long-term $60 per barrel Brent crude price environment," he says. Brent crude, the main price benchmark for oil traded internationally, was trading at $59.60 a barrel on Friday morning. Marathon shares could rise to $72 in the next six months, Mehta says, a 16% increase over Thursday's closing price of $61.93. Marathon's dividend yield is 3.4%. Phillips 66 has a pipeline business that is similarly promising, Mehta writes. His price target on the stock is $112, a 5.1% premium over Thursday's closing price of $106.60. Phillips' dividend yield is 3.4%. Valero should also benefit from IMO 2020, and has a side business that converts things like animal fat and used cooking oil into diesel fuel. Mehta's price target on the stock is $92, or a 7.2% premium to Thursday's closing price of $85.80. Valero has a dividend yield of 4.2%. |
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