Is VLO (Valero Oil) Under Valued?

I love it when companies like Lehman Brother, who cannot even balance their own books let alone give any solid investment advice (Subprime Mess) downgrades any stock. You mean to tell me that you will downgrade VLO but not MER? Hmm… that is rather convenient. But no matter who is saying what, there is always the truth, the truth from an accountants view. Our job is to tell you the truth, no matter how much the board members want us to lie. Arthur Anderson should have known this, but they didn’t. Money got into the way.

So, the big question is whether or not VLO is valued properly. I could spend all day going over the books with you, but I will cut to the chase and show you what I think. Granted, I think MER is not worth the paper the stock is cut on, but that is my opinion and stupid is as stupid does.

Key Analytic Tools and Ratios

Let’s start out with the Average P/E for the sector and then move from there. The Average P/E in this sector is roughly 17.6. I think a safe P/E is 10 and Buffet loves stocks with decent growth that trade under 15. So lets call it 10. VLO trades at only 7.8 and it’s major competitor, Anadarko trades at 8.1. Anadarko has a ton more shares than VLO, so that would dilute the share price. None the less, both of these companies are off from what their fair market value worth is. VLO’s eps is 6.58. So take this number, multiply it by ten, and see where that lands you…………. I can help, the stocks fair market value is 65.80. It is trading today, under 50.00. But given the fact that we cannot predict what will happen tomorrow, let’s just say it closed at 50.00 today. If it was to close in the next year at the 65.80, then it would be a 30 percent gain, which beats any mutual. VLO’s peg is extremely low, the lowest of the group which means there is a much more room to grow. Speculation would tell you that the cost of gas is too high for VLO to profit? Well, speculators do not know how to refine oil, so we will leave it up to VLO.

Yes, this stock is undervalued. I do not own this stock as of yet, but don’t think I am going to buy this stock tonight. Just by looking at those two basic items, I know that it is money! See you at $65.