Stock Strategist: Are Independent Refiners Still Buys?

[Morningstar Logo]( [Company Site]( [Company News]( [Membership]( [Portfolio]( [Stocks]( [Options]( [Funds]( [ETFs]( [Markets]( [Tools]( [Personal Finance]( [Discuss]( Stock Strategist Are Independent Refiners Still Buys? Shares have rallied, but valuations are still compelling as the near term remains uncertain. [tab_bar] by Allen Good, CFA | 5/29/2020 1:00:00 PM 2020 has taken a turn for the worse for the oil refiners. Originally well positioned to enjoy a tailwind from the implementation of IMO 2020 regulations (wider heavy crude differentials, stronger distillate margins), refiners are now slashing capacity to adapt to crashing product margins and a collapse in demand. Demand for the remainder of the year remains uncertain, with the market largely anticipating a strong summer gasoline season as U.S. travelers look to get out of the house but avoid air travel. As a result, the jet fuel market will remain weak and spill over to the distillate market as refiners blend excess jet fuel into distillate, creating excess supply. Despite the near-term uncertainty, we think investors should get interested in refining shares for two reasons. First, while destroying near-term demand, the coronavirus should not affect long-term demand, leaving our midcycle product margin and crude differential forecast unchanged. Second, valuations are attractive and continue to discount a return to normalized conditions. While volatility in the shares probably isn’t finished, refiners are worth a look, given their valuations and low risk of near-term financial distress. On the basis of discount to our fair value estimate as well as asset-based metrics, Marathon Petroleum [MPC]( stands out, followed by HollyFrontier [HFC](. To read more, click [here](. Sponsored Links [Buy a Link Now]( Podcast: Investing Insights From Morningstar.com Listen to a roundup of the latest videos featured on Morningstar.com [in this podcast]( available through iTunes. Free Issue | Morningstar's Stock Newsletter >> Morningstar StockInvestor is celebrating more than 10 successful years of high-quality stock investing. Its two real-money portfolios have outperformed the S&P 500 since 2001. [Get new ideas for the core of your stock portfolio](. Search Most Recent Articles [Should You Let Your Stocks Ride?]( [10 Promising Stocks]( [What the Pandemic Means for Sustainable Investing]( Latest Analyst Reports [TAL Education Group]( [Dell Technologies]( [Zscaler]( [Okta]( [VMware]( ABOUT OUR EMAIL TO UNSUBSCRIBE this email address to the Stock Strategist newsletter, please click "reply" and then click "send." This will unsubscribe only this email address to this specific newsletter. All subscription changes will take effect within one business day. Replies are not read by individuals, so please do not use this for queries about Morningstar.com. If you have questions about Morningstar.com or your membership, send a note to [joe@morningstar.com](mailto:%20joe@morningstar.com). ABOUT OUR PRIVACY POLICY Please [click here]( to learn about Morningstar's privacy policy. (c) Copyright 2020. Morningstar, Inc. 22 West Washington Chicago, Illinois, 60602 All rights reserved.