While crude oil prices have declined significantly over the past month, gas prices remain elevated. According to GasBuddy, across the United States, gas prices average $4.11 a gallon. While oil prices have declined almost 20% from their March high, the average gas price indicates a 5% decline over this period. This is not unusual. According to Ben Storrow, a reporter for E&E News, gas stations do not immediately hike prices when oil prices go up, but they do so aggressively once they start raising prices. However, when oil prices decline, gas stations lower the prices gradually. This strategy helps them benefit from the significant difference between buying and selling prices.  

Furthermore, seasonal gasoline demand is estimated to rise and might garner significant profits for the big sellers. According to a Visiongain report, the global liquefied petroleum gas market is projected to grow at a 5% CAGR  from 2022 to 2032. Investors’ interest in the gasoline industry is evident in the United States Natural Gas ETF, LP’s (UNG) 46.6% returns over the past three months.

Given this backdrop, we think fundamentally strong stocks Marathon Petroleum Corporation (MPC) and Valero Energy Corporation (VLO) could be wise bets for now.

Marathon Petroleum Corporation (MPC)

MPC, through its subsidiaries, operates as an integrated downstream energy company, primarily in the United States. The Finlay, Ohio,  company has two segments: Refining & Marketing and Midstream. It currently operates 7,159 brand jobber outlets in 37 states, the District of Columbia, and Mexico.

On March 1, 2022, MPC announced its agreement to form a joint venture with Neste for Marathon’s Martinez renewable fuels project. President and CEO Michael J. Hennigan said, “Our partnership with Neste signals another step in our commitment to the energy evolution and our focus on lowering the carbon intensity of our operations and the products we manufacture.”

For the fourth quarter, ended Dec. 31, 2021, MPC’s total revenues and other income increased 95.8% year-over-year to $35.61 billion. The company’s net income came in at $774 million, up 171.6% year-over-year. Also, its EPS was  $1.27, up 188.6% year-over-year.

Analysts expect MPC’s revenue to be $139.12 billion in 2022, representing a 15% year-over-year increase. The company’s EPS is expected to rise 158.4% to $6.33 in 2022. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 61.8% in price to close yesterday’s trading session at $89.69.

MPC’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

In addition, it has a B grade for Growth, Momentum, Sentiment, and Quality. MPC is ranked #14  of 96 stocks in the B-rated Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for MPC (Value and Stability).

Valero Energy Corporation (VLO)

VLO manufactures, markets, and sells transportation fuels and petrochemical products in the United States, Canada, the United Kingdom, Ireland, and internationally. The San Antonio, Tex., company operates through three segments: Refining; Renewable Diesel; and Ethanol.

On April 26, 2022, Joe Gorder, VLO’s Chairman and CEO, said, “We expect low-carbon fuel policies to continue to expand globally and drive demand for low-carbon fuels and with that view, we are leveraging our operational and technical expertise to steadily expand our competitive advantage.”

For the fiscal first quarter ended March 31, 2022, VLO’s revenues increased 85.2% year-over-year to $38.54 billion. Its net income came in at $967 million, compared to a $622 million loss in the year-ago period. Furthermore,  its EPS came in at $2.21, compared to a $1.73 loss per share in the prior-year period.

VLO’s revenue is expected to increase 27.1% to $144.88 billion in 2022. Its EPS is estimated to increase 317.8% to $11.74 in 2022. Over the past year, the stock has gained 55.9% to close yesterday’s trading session at $115.53.

It is no surprise that VLO has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Growth, Momentum, Sentiment, and Quality.

VLO is ranked #3 in the  Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for VLO (Value and Stability).

MPC shares were trading at $88.99 per share on Friday afternoon, down $0.70 (-0.78%). Year-to-date, MPC has gained 40.09%, versus a -11.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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