"Tesoro Corporation (NYSE: TSO), one of the largest oil refiners in the world, has suffered a brutal beating, falling from $60 per share earlier this year to below $8 recently," points out special situations specialist Karim Rahemtulla.
In his Xcelerated Profits Report, he explains, "Currently sporting a share price that is fully half the company’s book value, TSO also has earnings power back on its side and is trading at six times this year’s earnings." Here's his bullish long-term outlook.
"You can blame the combination of a crisis-hit market and record oil prices in July for the decline in Tesoro. You see, while OPEC might have made a killing, oil refineries couldn’t keep up with the rising cost of making the gasoline, versus the price consumers were paying.
"But today, the reverse is true. The remarkable and rapid plunge in oil prices has produced fatter refining profits. Expect that trend to continue for some time, thanks to the economic weakness keeping a tight lid on oil prices.
"Right now the biggest argument against owning anything energy related is the effects that reduced demand will have on products. But that’s only true in the short-term. This recession will not last forever, which means that oil prices will rise again.
"In fact, lower oil and gasoline prices will be strong catalysts in fueling a future recovery because consumers who cut back when prices were more than double what they are now will boost demand again.
"That increased demand, coupled with a lower price for Tesoro’s main input product – oil – should result in a better earnings profile. But by then, it will be too late to buy TSO shares on the cheap. And right now, they’re cheap.
"Tesoro insiders have also bought shares at much higher levels than the current price. With this indicator, a good barometer for future success is to buy about 6-9 months after insiders buy.
"But there’s a caveat. Until this year, high insider buying almost ensured a bump higher in the share price shortly afterwards. But six months after insiders started loading up, the share price has fallen more than 50% and a couple of insiders have sold.
"What gives? We have to put this one blip on the radar down to the unique state of the market. The fact that a couple have sold is to be expected, in order to cover their other debts in this market.
"Remember, when TSO insiders were buying, they did so on the expectation of better future earnings. And they’ve been proven right. There is nothing fundamentally wrong with Tesoro and with oil prices now having slumped, the intense pressure on refiners has eased.
"The shares may not truly recover for some time, due to the prospect of more bad economic news on the way. The current economic stimuli filtering into the marketplace will take some time to work, so expect to see two or three quarters pass before we see positive growth again.
"And mark my words, unless we’ve repealed all economic and monetary theory since the last recession, we’ll get out of this one in due time, too. And when that happens, Tesoro will be in an excellent position to not only cope, but profit, too."
