It’s no secret that I’m a big believer in refiners. If there’s one force at hand that’s powering the American recovery, it’s the boom in U.S. oil and energy production brought about by oil fracking technologies. After all, fracking allows oil drillers to tap into America’s vast oil shale reserves. The result is putting the U.S. on the path to not only energy independence, but also economic independence, as experts estimate that this new boom will create more than 3 million jobs in the next seven years and will generate $2.5 trillion in tax revenues.
Over the past five years as the fracking revolution has taken hold, the United States has become a global leader in crude production and oil production capacity growth—adding 1.2 billion barrels per day in production growth—and the world’s largest natural gas producer as well, at 65 billion cubic feet per day. The result has pushed down the price of natural gas to the lowest it has been in 10 years—from $15 a cubic foot in 2005 to less than $3 a cubic foot today. And that’s just in the short term.
The New Energy Boom
Even more striking is that this isn’t a low-cost energy bonanza just for oil and gas businesses, but for all U.S. consumers as well, because half of all U.S. households spend 21% of their after-tax income on energy. So it’s no surprise that the top-performing stock sector of 2012 was in consumer discretionary spending, as lower energy costs simply put more money in consumers’ pockets.
This is why our top retailers, manufacturers, and oil and gas investments have risen as much as 200% over the past three years and why their profits will continue to grow. And it’s all because the combination of falling heating and electric costs and lower interest rates is giving families more discretionary income to spend on “the fun stuff.”
This ripple effect extends to builders and workers in the housing and building trades, for producers of home appliances, and for retailers, as Americans spend their newfound wealth on the things that they have been denying themselves for the past five years. On top of this, the energy boom also creates more American jobs as the U.S. simply becomes a cheaper place to manufacture goods.
The chart below tells the whole story.
It is precisely this low cost of fuel that’s driving more and more companies to bring their manufacturing facilities back to the U.S.
- This is why Apple Inc. (AAPL) is investing $100 million in 2013 to resume building Mac computers in the U.S.—a task the company offshored to China in the late 1990s.
- This is why General Electric Co. (GE) is planning to open 15 new U.S. manufacturing plants in the next few years.
- This is also why Ford Motor Co. (F) is bringing 12,000 more jobs back to the U.S., investing $6.2 billion in its Flat Rock, Michigan, plant alone to do so.
- This is also why, after six years of using contractors in China, Whirlpool Corp. (WHR) is restoring U.S. jobs as well.
And all this can be traced back to the low cost of energy to produce these goods.
How to Reap the Rewards
When you add everything up—the increase in the money supply, the zero-interest-rate environment, the low natural gas prices—you can see why it’s only a matter of time before the economy hits the gas as employment, housing, and wages increase. So it is in your best interest to prepare, and a good place to start is with top refining stocks.
Domestic oil production has reached its highest point in two decades—nearly 7 million barrels a day. That’s also why the U.S. Energy Information Agency (EIA) sees production jumping to 7.8 million barrels in 2014. The result will be a boom for both chemical companies and refineries, because they will no longer have to import costly foreign oil in order to refine it—increasing both refining profit margins and profits along the way.
I’m not the only one who sees the handwriting on the wall.
Robin West of PFC Energy told the Financial Times of London that she sees the same wealth boom taking place: "The entire structure of the U.S. refining industry has been turned on its head. Up until recently, oil was imported and refined on the coast and then transported inland. Now the crude is being produced inland and sent to the coasts. It’s a goldmine for the refineries that have access to it [shale oil from fracking]."
So it’s no wonder that the S&P Supercomposite Oil & Gas Refining & Marketing Index has risen 75% over the past 12 months as the shale boom has taken hold.
My top pick in this sector should beat even those great gains. Here’s why:
- It is strategically located to take advantage of the boom in shale gas production and distribution.
- It is also the third-largest stand-alone refiner in the U.S. and recently reported strong operating results for the first quarter, seeing higher sales at its new refinery.
- This, coupled with cheaper domestic crude oil, propelled earnings 22% year-over-year to $725 million, or $2.17 per share, which was huge earnings surprise. As if that weren’t fantastic enough, revenues climbed 15% to $23.33 billion, topping the $19.8 billion consensus estimate by nearly 18%.
For these reasons, we are estimating this stock’s price could easily rise in the double-digits over the next six months.
That’s a bold claim, I know. But not when you see my full research. Current Blue Chip Growth readers can view the name of this top refiner and access complete details on its profit potential in an exclusive report on their subscribers-only website. If you’re not currently a Blue Chip Growth member but would like more information on this stock, you can start your risk-free trial of this premium service by clicking here.