Give These 5 Sectors a Second Chance

Sector #5: Oil Refiners

I used to be so in love with oil refiners. One of the best recommendations of my career was to buy oil refiner Tesoro (TSO) when shares traded for $1 per share in late 2002. Then subsequently shot to more than $100 on a split-adjusted basis in the five years after.

But that all changed in 2008. Oil price volatility shot through the roof. That volatility made it nearly impossible for oil refiners to make money. The industry operates on very slim margins to begin with, and when you add in the volatility, poof, gone are the profits.

Shares of TSO and other refiners were sold heavily in 2008. At the bottom, TSO was fetching a mere $6 and change per share. That was a far cry from the heady days.

The problem, of course, is the volatility. Unregulated speculation in the oil pits created a volatile mix that resulted in huge price increases. Even though such prices were unsustainable and ultimately collapsed, the quickness of those events were disastrous for the refiners.

But today is another day, and volatility in oil prices has subsided. We have traded in a narrow range for the last several months. There is still volatility, but that volatility is much less than the levels seen in 2008.

I think investors ought to look at the space with a loving eye. Along with Tesoro, investors may want to consider Valero Energy (VLO) and Marathon Oil (MRO).

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