Believe me, I tried to think of another title for this post. I lamented over the fact that this title may be viewed as a personal assault upon Cramer’s reputation. However, after intense analysis, this is the only title that would suffice.
On yesterday’s Mad Money show, Cramer threw refiners into his “sell block.” Why you ponder?
Well, he discussed how the crack spread is “super high” and how the spread between WTI and Brent crude could not sustain current levels. He furthered his assault, claiming the group was set to report “outstanding results” and that the stocks would gap higher on that news. WTF?!? Now a normal person would discount his opinions regarding Brent-WTI spread tightening as mere conjecture. After all, there is a reason why Brent is trading at a big premium, all to do with the middle east on fire, literally. WTI crude is stored in Oklahoma, a place where tomahawk missiles and bands of RPG wielding “freedom fighters” are not found in great abundance. Frankly, I agree with everything else he said.
Yes, the refiners will report outrageous earnings, effectively roasting the stomachs of those betting against them. Going into the peak driving season, gasoline demand will soar, sending spreads even higher. Current spreads are at $25 and climbing, yet Cramer is telling his flock to take profits. I cannot agree with such thinking, especially at a time when the refiners are just ramping, from an EPS perspective.
How egregious can share prices get, best case scenario?
Let me show you something. Inside The PPT, I launched new tools that will automatically scour analyst estimates, both high and low ranges, then recalculate PEG and FPE scores based on the data. Let’s take a look at the average estimates for the refiners, then compare that to the high end estimates (I believe refiners will exceed the very highest of estimates).
|No.||Ticker||Earnings – Avg. Est. (next yr)||Earnings – Avg. High Est. (next yr)||Forward PE||Forward PE (high est.)||Industry|
|1||VLO||3.48||4.80||8.33||6.07||Oil & Gas Refining & Marketing|
|2||MRO||5.69||7.63||9.20||6.94||Oil & Gas Refining & Marketing|
|3||WNR||1.89||2.41||9.74||7.63||Oil & Gas Refining & Marketing|
|4||HES||7.88||10.42||10.11||8.11||Oil & Gas Refining & Marketing|
|5||MUR||6.99||8.94||10.17||8.40||Oil & Gas Refining & Marketing|
|6||TSO||2.53||4.04||10.55||6.61||Oil & Gas Refining & Marketing|
|7||CVI||2.10||2.20||11.15||10.65||Oil & Gas Refining & Marketing|
|8||HOC||5.26||7.49||11.61||8.15||Oil & Gas Refining & Marketing|
|9||FTO||2.44||3.55||12.12||8.33||Oil & Gas Refining & Marketing|
|10||CLMT||1.60||1.70||13.18||12.42||Oil & Gas Refining & Marketing|
|11||INT||2.86||3.00||13.91||13.27||Oil & Gas Refining & Marketing|
|12||SUN||2.74||3.90||16.93||11.89||Oil & Gas Refining & Marketing|
|13||UGP||0.94||0.95||18.62||17.87||Oil & Gas Refining & Marketing|
|14||DK||0.71||1.06||19.04||12.75||Oil & Gas Refining & Marketing|
|15||EROC||0.36||0.50||28.97||20.84||Oil & Gas Refining & Marketing|
|16||SYNM||0.07||0.07||29.71||30.00||Oil & Gas Refining & Marketing|
|17||ALJ||0.40||1.87||35.50||7.60||Oil & Gas Refining & Marketing|
Based upon high end estimates, VLO is trading 6x and WNR 7.5x 2012 estimates. That’s absolutely ludicrous for an industry that is enjoying extreme revenue and EPS growth. An argument could be made, due to the current WTI-Brent spread, the refiners have never been this attractive. Period. WNR trades to $25, or 10x 2012 estimates. Write.it.down.
In summary, I could never do what Cramer does, day in and day out. However, mark my words, I will eat his liver with my long bias versus his sell block bullshit, in the refiners.[youtube:http://www.youtube.com/watch?v=E5GHn4EAR-g&playnext=1&list=PL9C849302F07CFF4E 616 500]
UPDATE: This guy gets it.[docstoc docId=”75721668″ mId=”-10″ width=”595″ height=”550″ slideMode=”false” showRelatedDocs=”false” showOtherDocs=”false” allowdownload=”true” url=”http://www.docstoc.com/docs/75721668/WNR”]WNR[/docstoc] If you enjoy the content at iBankCoin, please follow us on Twitter