We've been spending quite a bit of time delving through some areas normally ancillary to the site in the last two weeks including dry bulk shippers, tankers and rails. We've also been taking a hard look at the refiners, harder than the street is I'll bet given the black and white, hot and cold nature of the recommendations there of late. My sense is that after a summer of big gains in the sector the Street, utilizing it's occasional ability to invest by driving with the rear view mirror, could use the trading volume and are therefore making more out of third quarter results than they normally do. Valuations are already low, cracks are improving and once they drive the stocks lower into 3Q results around early November they'll be back beating the bull drum again. I'll be there first.
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Recent Track Record On Refiners Has Been Pretty Good.
On July 13, I wrote a piece calling for an end to the big 2007 in refiner share prices and the refiners, luckily enough, turned down that very day. Here's an excerpt from that piece:
If they went up in lockstep with higher cracks, it stands to reason that the stocks, especially the smaller caps that have experienced significant multiple expansion will full the same pull, if only seasonal in nature as estimate growth slows, and eventually falls.
Finally, I was taking a look at historic forward multiples of earnings and valuations look pretty lofty here. Even (VLO), my favorite refiner is trading a little higher than it normally does on a forward basis. As you go down the market cap chain, the relationship between past trading range multiples and present multiples of forward earnings gets truly stretched.
Here's a link to the full piece in July.
July 13 turned out to be the peak alright, and the little but expensive guys suffered the biggest pullback
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We actually had a pretty quiet week for trade closings this past week and are letting several winners run. We are currently positioning some longer term trades for 3Q earnings.
Recently Closed Trades:
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