Oil refiner stocks were the stars of the energy sector in 2015, but they have been absolutely crushed so far in 2016. While the Energy Select Sector SPDR (ETF) XLE is up 11.3 percent this year, refiner stocks are averaging a more than 40 percent decline.
Goldman Sachs analyst Neil Mehta believes the selloff has created some buying opportunities for investors, but he warns that stock picking is critical in the unpredictable oil market.
“We continue to see coastal refiners as advantaged vs Mid-Con peers given access to discounted medium/heavy crudes, higher asset complexity and, often, the ability to export refined product,” Mehta explained.
In addition to a preference for coastal refiners, Goldman also encourages investors to identify refiners with significant non-refining business segments, such as retail or midstream.
Tesoro Corporation TSO is an excellent example of a refiner with both midstream and retail exposure, and Goldman has upgraded the stock from Neutral to Buy. The firm also names Marathon Petroleum Corp MPC and Valero Energy Corporation VLO as top picks.
At the same time, Goldman has downgraded PBF Energy Inc PBF from Buy to Neutral as RINs prices have surged.
Goldman also maintains Sell ratings on Phillips 66 PSX, HollyFrontier Corp HFC, CVR Energy, Inc. CVI and CVR Refining LP CVRR.
Disclosure: The author holds no position in the stocks mentioned.
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