The VanEck Vectors Oil Refiners ETF (NYSEArca: CRAK) is up almost 10% this year, a solid performance relative to other energy ETFs. CRAK can build on those gains if some of its marquee components meet or exceed Wall Street expectations.
CRAK tracks the MVIS Global Oil Refiners Index. That index “is a rules-based, modified capitalization-weighted index intended to give investors a means of tracking the overall performance of companies involved in crude oil refining which may include: gasoline, diesel, jet fuel, fuel oil, naphtha, and other petrochemicals,” according to VanEck.
Discounted crude could help oil refiners, like Phillips 66 and HollyFrontier Corp., that capitalized on the difference between their cheap input costs and higher-end prices for refined goods like gasoline and diesel.
“We argue that PSX’s track record of execution, defensive nature, returns generation, and capital allocation profile make it a compelling investment relative to Exxon Mobil (XOM),” notes Goldman Sachs analyst Neil Mehta.
Phillips 66 is CRAK’s second-largest holding at a weight of 8.32%.
In Need of Demand and Stability
CRAK and refiner equities don’t necessarily need oil prices to rally; they need demand and price stability. The U.S. refining sub-sector has been one of the most profitable sectors in the U.S. economy over the past five years.
Marathon Petroleum (NYSE: MPC), CRAK’s third-largest component at a weight of 7.57%, is another name that could boost the ETF.
“While investors we spoke with viewed the news of Marathon’s decision to spin off the Speedway business positively, we would see the completion of the proposed spin as another potential positive catalyst given current premium multiple levels for other retail assets in the market,” said Goldman’s Mehta.
Valero (NYSE: VLO) is another name that could contribute to the CRAK bull case. That refiner is the fund’s fourth-largest holding at almost 7%.
“Valero has deep expertise in processing heavy crude oil and turning it into lighter-fuel products and should profit as demand rises for low-sulfur fuel and refining spreads change. Valero is up 22% in the past three months, but Mehta sees it rising more,” reports Barron’s.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.