Bad News For Refiners...Or Not So Bad For Some

Bloomberg has a report on the energy markets that suggests some bad news for refiners. Gasoline futures dropped, the spread between crude and refined products dropped, inventories of refined products ballooned while crude inventories shrank. This squeeze implies that refiner margins are going to get squeezed too. On the face of it, the report would be hard on refiner stocks. Common sense says so.

And yet...there are two pure-play refinery stocks in the Low P/E Bin: Holly Corporation and Tesoro Corp. Holly has a P/E of 7.12, with 3.15% yield, and Tesoro has a 4.51 P/E with 3.06% yield. To add to industry woes, the latter got downgraded to "Sell" by Goldman Sachs' Arjun Murti.

You'd think, with this news getting around, both stocks would have been beaten down today. At the very least, Tesoro should have.

But here's the surprise: Holly was up 5.84% as of the close today, and Tesoro was up 2.75%. Both handily beat all three major averages. Holly dropped a penny in after-hours trading, and Tesoro Corp. gained 12 cents. Both kept their regular trading day gains.

This anomaly - I might as well call it one - is not that unusual in the Low P/E Bin. As David Dreman noted in his latest already-released book, Contrarian Investment Strategies: The Next Generation, bad news sometimes leaves low P/E stocks unaffected. At times, they rally on bad news because Mr. Market feared worse. Both of these refiner stocks qualify, suggesting that the pair had been beaten down a little too much recently.

Holly and Tesoro. This pair may not constitute much of a tip, but it's a better one than you'd get from a penny pusher.

Disclosure and Info: Neither of them are my actively managed mock fund, as yet. Tesoro was mentioned by Mr. Dreman in his latest Forbes column, "Let's Hoard Crude Oil."