IBD 50 oil stock Valero Energy is in a buy zone above a buy point of 132.03. However, the 34% depth of the asymmetrical and long cup-with-handle base is less than ideal.
The IBD 50 is an elite list of growth stocks. These companies have strong fundamental, technical and price performance scores in the most recent quarters and years. However, growth stocks as a whole face increasing headwinds in an environment of rising interest rates.
Oil stocks face additional risks due to uncertainty about OPEC+ production and worldwide demand. European sanctions on Russian oil will go into effect on Dec. 5, adding another potential headwind.
Crude oil is also coming under pressure due to fears of a recession. A slowing economy is likely to put pressure on oil stocks like Valero.
Valero is showing signs of market leadership in this tough environment and is on watch. It has nearly-perfect 98 Composite and 97 Relative Strength Ratings. It ranks third in the Oil and Gas-Refining/Marketing group, which holds the 43rd position among IBD's 197 industry groups.
Its B- Accumulation/Distribution rating shows that many fund managers are interested in buying the oil stock. Funds now own 49% and more have been purchasing Valero shares over the past five quarters.
Valero Energy's Strong Earnings, Sales
The San Antonio, Texas-based Valero refines and sells petroleum and low-carbon transportation fuels in the U.S., U.K., Canada, Ireland and Latin America. The company's 13 refineries have a capacity of 3.2 million barrels a day. It has a joint venture with Diamond Green Diesel Holdings in Louisiana and owns 12 ethanol plants in the mid-continental area.
In the most recent quarter, the oil stock booked impressive 51% sales growth of $44.5 billion, up from $29.5 billion in the same quarter last year. Earnings of $7.14 per share blew away last's year's $1.33, marking astounding 437% growth and the sixth consecutive quarter of sequential growth. Adding to the bullish metrics, Valero reduced its debt by $3.6 billion in the one-year period ending June 2022.
The oil stock will pay a quarterly dividend of 98 cents per share to shareholders of record as of Nov. 17.
Major Acquisitions
The refiner has made a series of acquisitions in the past two decades.
In 2018, it ventured into Latin America through the purchase of Pure Biofuels, a privately-held company in Peru. The acquisition of that nation's third-largest fuel importer was all cash.
Earlier purchases include Parkway Pipeline, acquired in 2016. And back in 2002, Valero completed a merger with Ultramar Diamond Shamrock after Shamrock divested its Golden Eagle Refinery, bulk gasoline contracts and 70 Ultramar retail gas stations. The company also bought Premcor for $8 billion in 2005, making it one of the largest refiners in North America.
