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Oil prices have fallen sharply over the last year and a half. The Energy Select Sector SPDR ETF (NYSEArca: XLE) has lost almost half of its value during this time. Marathon Oil (NYSE: MRO) has dropped over 75% from its 2014 high.
Despite the weakness in the sector, one oil company stock has managed to hold up rather well: Valero Energy (NYSE: VLO). Valero lost 2.2% Thursday after releasing earnings before the opening bell.
If we look at performance comparison chart over the last four years, you can see how dramatically Valero has outperformed its peers and the sector as a whole. The XLE is down almost 20%, and we see how badly Marathon has fallen.
I added Chevron (NYSE: CVX) and Exxon Mobil (NYSE: XOM) to the chart to show a couple of other major oil stocks. Exxon is right at break-even and Chevron is down around 10%. In the meantime, Valero has gained over 200% in the last four years.
Looking at the daily chart for Valero, we see that it has experienced a slight pullback in recent weeks. That could be providing a buying opportunity. We see a trend line connecting the lows from the last five months and the stock is just above that trend line now.
Turning our attention to the weekly chart, we see a trend channel that has dictated trade over the last couple of years. We also see that the oscillators are moving below the 50 level, which is somewhere they haven’t spent much time over the last few years.
The 10-week RSI is down to 43.20. The last couple of years, 40 is about as low as it has gotten, with the exception of the fall of 2014.
Oil and the XLE fund are both in oversold territory on their weekly and monthly charts, and they look like they might be ready to rally in the coming months. However, that has been the case on a couple of occasions during the decline and investors have gotten hurt trying to call a bottom and catch the proverbial falling knife.
Rather than buy oil futures or the XLE, I would rather buy Valero. It has held up well over the last year and a half, which makes me think it is the much safer energy play right now. Should oil rally, Valero should rally right along with it. Sure, a beaten-down stock like Marathon might rally more sharply because of how beaten down it is, but I don’t think you want to swing for the fences with an energy play right now.
I would look to acquire Valero shares below $67.50 and hold them at least until midway through the second quarter. I don’t have an upside target at this time, as I think it moves above its high from last fall. As far as a stop-loss point, if the stock falls below the $57.50 level I would look to get out.
Turning the screws on big oil
If you’re like me, you hate watching all the money you’re paying big oil when pumping gas. But just imagine if you knew you would get every single penny of this money back. Think about how thrilling pumping gas would be then. Amazingly, many Americans are doing just this—receiving gas rebate checks from big oil. Not only that, these checks are mandated by Uncle Sam. One man received more than $6,165 to offset the cost of filling his sports car. No joke. Find out how it’s done right here.