Myth or Fact: Sell Refiners in the Spring?

Because I am long the refiners, my ear is to the ground, regarding investor sentiment in the refining space. A lot of people seem to believe the trade is to be long refiners, ahead of the driving season, then sell as gasoline rips the faces off consumers.

The gagillion dollar question is, has this trade proven to be successful in the past? Let’s take a gander, shall we? Follow me into the dark corridors of The PPT.

I will pick three refiners for this study: TSO, HOC and VLO, due to their institutional favorite status.

TSO

April
Stats for the month:

Avg Return 2.46
# months TOTAL 28.00
# months UP 17.00
# months DOWN 11.00
months UP (%) 60.71
months DOWN (%) 39.29

May
Stats for the month:

Avg Return -0.50
# months TOTAL 28.00
# months UP 15.00
# months DOWN 13.00
months UP (%) 53.57
months DOWN (%) 46.43

June
Stats for the month:

Avg Return -0.94
# months TOTAL 28.00
# months UP 14.00
# months DOWN 14.00
months UP (%) 50.00
months DOWN (%) 50.00

——————————————-

VLO

April
Stats for the month:

Avg Return 3.55
# months TOTAL 30.00
# months UP 17.00
# months DOWN 13.00
months UP (%) 56.67
months DOWN (%) 43.33

May
Stats for the month:

Avg Return 1.69
# months TOTAL 26.00
# months UP 17.00
# months DOWN 9.00
months UP (%) 65.38
months DOWN (%) 34.62

June
Stats for the month:

Avg Return -4.15
# months TOTAL 29.00
# months UP 11.00
# months DOWN 18.00
months UP (%) 37.93
months DOWN (%) 62.07

———————————————–

HOC

April
Stats for the month:

Avg Return 3.93
# months TOTAL 19.00
# months UP 11.00
# months DOWN 8.00
months UP (%) 57.89
months DOWN (%) 42.11

May
Stats for the month:

Avg Return 2.32
# months TOTAL 18.00
# months UP 12.00
# months DOWN 6.00
months UP (%) 66.67
months DOWN (%) 33.33

June
Stats for the month:

Avg Return 0.40
# months TOTAL 19.00
# months UP 8.00
# months DOWN 11.00
months UP (%) 42.11
months DOWN (%) 57.89

The results say sell in June, if you are interested in taking profits. What’s important to note is how did refiners do in 2006-2007? After all, the last time crack spreads were this wide was 2006-2007. It would make sense to try to learn from the trading patterns of this industry when the fundamentals were almost identical, sans the extra bonus we have now with Brent-WTI spread.

TSO

2006
April: +2.36%
May: -2.43%
June: +9.2%

2007
April: +21%
May: +2.1%
June: -7.5%

VLO

2006
April: +8.3%
May: -5.1%
June: +8.4%

2007
April: +8.9%
May: +6.4%
June: -1%

HOC

2006
April: +4.1%
May: +8.1%
June: +15.6%

2007
April: +7.25%
May: +10.2%
June: +6%

The verdict: refiners did exceptionally well throughout the Spring months and into the Summer. If anything, sell in June, then come back for the ever exciting hurricane season aka “say goodbye to your GOM oil rigs, fuckface.”

In closing, here is how WNR performed month by month, in 2007, compared to the present.

WNR
2007
Jan: +7.4% Feb: +5.7%, March: +35%, April: +1.5%, May: +24.1%, June: +17.8%, July: -3.98%, August: -6.6%, Sept: -21.6% (Bear Sterns), Oct: -9.6%, Nov: -21.2%, Dec: -16%
2011
Jan: +15%, Feb: +33.6%, March: +4.2%, April: +3.4% (so far)

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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]

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I bought 10,000 WNR for personal.

See crack spreads?

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Based upon nothing at all, the market will melt up today. You will see the dollar trade lower, commodities gap higher, and stocks eviscerate anyone who shorts them. There are a thousand reasons to sell stocks, but just one to make you go long— to make money.

Ladies and gentlemen, people want to be “rich as fuck” again. They will leverage their future in order to own something, irrespective of where that company is located. The beauty of this business we are in is its immunity to domestic retardation. Go ahead and shut the fucking factories. Send those jobs to Ibiza for all I care; I will go long foreign stocks, fueled by foreign cocaine—for domestic consumption.

As Congress flops around like fish out of water, the American investor, mind you, is having a renaissance. I know Jakegint will cry foul and lament the great many grotesqueries of a Mr. Barry O’bama. However, keep in mind, Senator CH is making more money than God now, long to death gold/silver. Bravo! Well done Senator Cement Head.

As for me, I will be the recipient of a good old fashioned “Cramer pump” this morning, long lots of MWW. Aside from that, I intend to make up yesterday’s losses and plan for the future– one that demands you shut the fuck up and listen to me, ever so quietly.

We’re cutting cocks off today. Get in line for a bowl of “ball soup.” I will be waiting in the rafters chuckling at the men in diapers.

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Is that all you could muster, you filthy dogs?

I took out my gambling robe and bought some SCON in my personal, because that’s who I am. Do not attempt to stop me from achieving greatness, for I will drop atomic bombs on your face and irradiate your fucking whirlpool.

For the day, I was down 0.9%, thanks to WNR and VLO. However, I sense a shift in the scales is coming. I will most certainly be there to capitalize, dick in hand, immune from your cutting blades.

[youtube:http://www.youtube.com/watch?v=EWkaZuV0A5w 616 500]

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I bought 10,000 SCON.

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We’re not down far enough to warrant some serious nibbling. In many respects, this is sheer ridiculousness. I am down about 0.9%, for the second consecutive day, and I have no urge to buy. Perhaps they are boiling me slow, this way I stay in the pot long enough for the big fire. Or, maybe the bears are so weak, so pathetic, that they are readying to clown, gorilla rape themselves over a barrel of uncut Colombian cocaine.

Either way, I must admit, I am not happy.

See, I have to make fuckloads of money or lose vast sums to placate the idiot in me. I can’t just make a little bit of money, or lose a “smidge.” It’s all or nothing with me, which is why I drive in a doorless car made from 100% dynamite sticks, with lit candles burning in the back seat.

For the remainder of the day, for the adventure of it all, I will be speed chopping carrots with my balls placed firmly on the kitchen counter.

Top picks: WNR, OXY, MWW

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We’re not only climbing the wall of worry, but a wall of shit. Let’s call it like it is: the EU has failed. Greece, Ireland and now Portugal have been bailed out. Going with the old acronym, I imagine Spain is next, no? That’s the big one. Forget about all of this small fry stuff. When Spain fails, the euro gets fucked.

Well, until that happens, stocks should continue higher. Look at this mornings retail sales: better than expected, across the board. I told you, based upon 2012 numbers, the Dow should go to 14,000. It makes people very upset to hear that, only because they missed out on buying the bottom. When will you accept the fact that the market never deserved to be at 6,000? It was a one off event, sort of like when you dated that hot chick in high school for one week, until she realized you were a fucking dork.

HOC caught an upgrade this morning: big deal. The analysts are woefully behind the curve on the refiners. I piss on their estimates. I shit on their reports.

Having said that, I’ve been told that many of you have not been adhering to iBC’s strict dress code, when visiting this site. Remember, I am watching all of you and know exactly who is in violation of the law. When you get your face punched in with a jelly donut, don’t act all surprised and shit.

Anyway, it’s time to visit your personal jeweler (I assume everyone has a private jeweler), in order to diversify your assets. To go with your stock, bond, art and collectible assets, you should have a healthy reserve of diamonds. You can cash that shit in just about anywhere, like gold—only more stable.

During this morning, I will be ignoring the market, for it is starting to annoy me. I will “revisit” this shit around noon.

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Pick one.

Stocks with market caps over $1 billion, down more than 20% over the past three months.

No. Ticker Market Cap 3-month Return
1 NETC 3,070,000,000 -34.69
2 MWW 2,180,000,000 -33.91
3 FFIV 7,620,000,000 -31.66
4 AIG 62,590,000,000 -31.20
5 CREE 5,080,000,000 -30.96
6 ODP 1,200,000,000 -27.62
7 DLB 5,530,000,000 -26.78
8 AMR 2,070,000,000 -26.45
9 NMR 17,350,000,000 -26.30
11 DAL 8,010,000,000 -25.64
12 LCC 1,360,000,000 -25.44
13 TLAB 1,940,000,000 -23.40
14 AGO 2,780,000,000 -23.31
15 AMLN 1,630,000,000 -23.16
16 AKAM 6,970,000,000 -23.14
17 SLXP 2,050,000,000 -22.90
18 HCBK 4,940,000,000 -22.86
19 CCJ 12,010,000,000 -22.52
20 WMS 2,120,000,000 -21.89
21 OMX 1,170,000,000 -21.80
22 MBI 1,980,000,000 -20.96

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Today seemed like a significant day. However, it may prove to be meaningless. I am going to throw some of my notes on this here blog, randomly, not really giving a fuck about cohesiveness.

Today’s notes at the desk of Le Fly

Mean sell off in treasuries, TLT down 1.5%.
Dollar tanked and gold/silver traded up. What else is new?
Coal down, natty down, oil up and gasoline down.
Refiners reversed lower. Crack spreads off by 3%.
WTI outstripped Brent.
Financials were very strong, while oil and gas stocks weak.
CSCO was very strong, as well as BRCM.
OPEN reversed lower.
Networkers FNSR, OCLR and XXIA surged. I thought that sector was dead?
AMD up. Okay, tech was kickass.
Education stocks were up big. No interest.
Pollution control stocks were up, like WPRT, PMFG, WCN and CLH.
TEX got hammered.
Furniture stocks were up, ETH, LZB, FBN.
Ag was very weak.
Do silver stocks ever trade down?
BBBY blew away numbers. This bodes well for GMCR.

For the day, I was down 1.1%.

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