Crude prices have dropped sharply over the past year with many analysts believing that the commodity will fall further before mounting a real recovery. From about $105 per barrel in July last to around $50 now – sinking in between to a 6-year low of under $44 recently – the plummeting value of oil represents a decline of more than 50% over eight months.

What’s more, in the absence of major production cuts from OPEC, the effects of booming shale supplies in North America and a stagnant European economy, we do not expect much upside in the commodity’s prices in the near term. Moreover, a stronger dollar has made the greenback-priced crude more expensive for investors holding foreign currency. The Iranian nuclear deal – that has the potential to release more oil in the already oversupplied market – has put the final nail in the coffin.

Oil Refining & Marketing: A Sector Bucking the Downward Trend

Despite the bloodbath, investors need not fear or steer clear of energy stocks as there are still a handful of them that are showing strength during this shaky period. In particular, with oil prices cooling off, U.S. downstream (refining and marketing) stocks have been notching up healthy gains.

The reason is very simple.

The business of the downstream players is negatively correlated with crude prices. This is because the companies use oil as an input from which they derive refined petroleum products like gasoline – the prime transportation fuel in the U.S. Hence, lower the oil price, higher will be their profits.

Supported by a Good Zacks Industry Rank

Most of the securities in the oil refining and marketing space is seeing solid earnings estimate revision activity, and is in great company from a Zacks Industry Rank perspective.

This is important because, often times, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. This is arguably taking place in the oil refining and marketing space, as it currently has a Zacks Industry Rank of 10 out of more than 250 industries, suggesting it is well-positioned from this perspective, especially when compared to other segments out there.  

3 Stocks to Consider Buying

For investors wanting to take advantage of the bullish oil refining landscape, we present three companies that may deserve attention. Each of them also has a good Zacks Rank.

Valero Energy Corp. (VLO - Analyst Report): It is the largest independent refiner and marketer of petroleum products in the U.S. It is also a leading ethanol producer with 11 plants in the Midwest. This San Antonio, TX-based downstream operator’s higher margins and lower expenses helped it deliver positive surprises in each of the last 4 quarters with an average beat of 23.60%. Moreover, over the past month, current quarter estimates have risen from $1.24 per share to $1.59 per share, helping Valero to earn a Zacks Rank #1 (Strong Buy), further underscoring the company’s solid position.   

Western Refining Inc. (WNR - Analyst Report): Western Refining is an independent refiner and marketer of refined petroleum products in the Southwestern and Mid-Atlantic regions of the U.S. The El Paso, TX-headquartered stock is also a Zacks Rank #1 that’s surprised earnings to the upside in 3 of the last four quarters. Additionally, the company has a price-to-book (P/B) ratio of 1.6 and a price-to-sales (P/S) ratio of just 0.4, suggesting that the stock is still undervalued. (A P/S ratio lower than 1.0 and a P/B ratio under 3.0 generally indicate value).

For the current quarter, we have seen 2 estimates moving up in the past 30 days, compared with no downward revision. This trend has caused the Zacks Consensus Estimate to trend higher, going from $1.00 per share a month ago to its current level of $1.19.

PBF Energy Inc. (PBF - Analyst Report): Parsippany, NJ-based PBF Energy’s primary business is to refine crude oil and supply the refined petroleum products. In addition to trading around 7.3 times forward estimates (substantially under the peer group average of 13.8), PBF Energy sports a trailing 12-month return on equity (ROE) of 22.5% – against its peer group average of 16.0%. Quarterly earnings projections for this Zacks Rank #1 company are also on an upswing with the Zacks Consensus Estimate for the first quarter climbing 37 cents (or 38%) to $1.35 over the past month.

Bottom Line

So, if you are looking for decent picks in a strong industry, consider the above-mentioned names. Not only are their industry currently in the top ten, but they are seeing solid estimate revisions as of late, suggesting these could be very interesting choices for investors seeking a name in this great industry segment.