Trade Entry: Buy WNR Again for a 12% Gain
This a new Buy recommendation to establish a position in Western Refining Inc. (NYSE:WNR) . We have had two profitable trades with WNR this year, and the recent drop in energy prices has set up another good opportunity.
There is a laundry list of reasons to buy WNR:
• The refining sector has been very profitable year-to-date and refining margins just keep getting wider. I track a crack spread based on NYMEX spot prices for WTI crude, unleaded gasoline, and No. 2 Diesel fuel. For the third quarter to date, my tracked crack spread widened by $1.80 per barrel. Regional cracks spreads from the Gulf Coast, Chicago and West Coast are averaging 24% higher in Q3. If WNR realizes a similar operating margin gain, gross profits from its two owned refineries will be 15% to 20% higher in Q3 compared to Q2.
• Western Refining controls and owns 38% interest in Northern Tier Energy LP (NYSE:NTI). NTI is benefiting from the very high gas prices due to the BP refinery outage near Chicago.
• I live in Nevada, and fuel prices in this area have come down about a dime as WTI crude went from $60 per barrel to $40. Western refineries may surprise all those analysts in New York.
We got out of our last WNR trade at just over $50 per share. The stock is now trading for $42 and change. With better Q3 results on the way, the stock has a good chance of again pushing the $50 mark.
Western also has a history of paying large year end dividends. The initial trade goal is a quick 12% gain on the next earnings announcement. If the market doesn’t react as expected, the trade can stay open as long as the crack spread remains high enough to support a large bonus dividend later in the year.
Trade recommendation: Buy WNR up to $42.50. Target price: $48.
Western Refining is a 1099 tax reporting company