Holly Frontier: A "Refined" Idea For Value Investors


Image Source: Unsplash

The secret to success in stocks is not to get scared out of the market. Of course, we are well aware that the immediate-term health news is dismal, with nationwide spikes in COVID-19 diagnoses and record hospitalizations, but the equity markets are forward-looking and are now expecting life to get back more towards normal by mid-2021.

Meanwhile, the U.S. economy has held up remarkably well of late, the Federal Reserve is likely to remain highly accommodative, and there is an expectation that additional stimulus will eventually come out of Washington. As such, our optimism for the long term prospects of our broadly diversified portfolios of what we believe to be undervalued stocks remains intact.

Yes, we are always braced for volatility. But the median stock in the Russell 3000 index was recently still underwater for 2020 — so there is plenty of room for continued price appreciation for many companies, especially those of the inexpensive variety like we have long championed.

One stock we have highlighted is Holly Frontier (HFC); the firm is a mid-cap, independent refinery with facilities in the central and mid-western United States. Despite its size, the complexity and location of Holly’s refineries in the mid-continent have historically allowed it to source cost-advantaged, heavy crude feed stock to produce refined product with comparable yields at higher margins than some of its competitors that rely on more expensive light crude.

These advantages have been tempered this year given the pandemic, but a strong capital position combined with reduced utilization at some facilities has offered an outlet to transition some of its production to renewable diesel.

We applaud the move. Not only does it better position the firm as the world increasingly shifts to greener energy sources, but Holly will save from no longer having to purchase Renewable Identification Numbers on the open market. Refining is a very volatile business, and we expect pent-up demand for travel and a normalization of the economy in the coming years to create a much better operating environment.

1 2
View single page >> |

Disclaimer: © 2020 MoneyShow.com, LLC. All Rights Reserved. 

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.