Trade of the Day: Long TSO - 9/30/15



Long: Tesoro Corp (TSO)

Buy at Current Price

Wednesday, September 30, 2015


Company Symbol Industry Current Price Target Price Potential Gain % Stop Potential Loss %
Tesoro Corp TSO Oil & Gas Refining & Marketing $97.70 $105.00 +7.47% $96.23 -1.50%


Three Key Points:

1. Energy has been abysmal in 2015. One look at the SPDR Energy ETF (XLE) is enough to say, "thanks, but no thanks," and move on. Most of the sub-industries in Energy are also extremely weak: Exploration and Production (XOP), Equipment & Services (IEZ), Natural Gas (FCG), Oil (USO), you name it - all bad. However, there is one bright spot in the relegated sector that is heavily outperforming and has a few ripe trade candidates - Refiners.

2. Refiners haven't taken nearly as big of a hit as the rest of Energy, and it's easy to see when viewing the major constituents of the sub-industry. VLO, TSO, MPC, and PSX all have held up relatively well over the past 6 months. From a technical perspective, each of these stocks look decent in the short-term. However, looking at a weekly chart, TSO sticks out like a sore thumb. The long-term up-trend of this stock is absolutely sterling, especially relative to its competitors.

3. So, we've identified what is potentially the best-performing large-cap Energy stock on the market right now, so how do we trade it? TSO has two stopping points ahead of it to the upside - $105 and the August highs of just below $110. The stock has short-term support at $96.23, which makes for a nice stop with a short leash (just -1.5% potential loss). This should help limit the downside moving forward. Should the stock continue to trend higher, look for $105 to be a nice point to sell out and capture a quick +7.47% gain. The stock has not been acting with the market or the Energy sector recently, so it looks like a great bet to trade, especially if Oil continues to stabilize and starts to turn higher. It's not easy getting Energy exposure these days, but TSO is the best bet in this sector at the moment.


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Company Profile:

Tesoro Corporation is an independent petroleum refining and marketing company. Through its subsidiaries, the Company primarily transports crude oil and manufactures, transports and sells transportation fuels. The Company operates through three business segments: Refining operating segment, which owns and perates six petroleum refineries with a combined crude oil capacity of 850 thousand barrels per day (Mbpd) located in the western United States and sells transportation fuels to a variety of customers; TLLP, a publicly traded limited partnership, which includes certain crude oil and natural gas gathering assets, natural gas processing and crude oil and refined products terminalling, transportation and storage assets, and Retail operating segment, which sells transportation fuels in approximately 16 states through a network of approximately 2,267 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.

Disclosure:

At the time of publication the editor and affiliated companies own the following positions: None

Note: Positions may be bought or sold while this publication is in circulation without notice.

Key Points to Consider When Trading

1. When does the company report earnings? If it's within the week, perhaps it's best to not participate in the trade or get out before the report.

2. How much cash are you committing to this trade? How aggressive you want the trade to be is entirely up to you, but I like to stick around a 10% per position commitment. Not extremely aggressive, and keeps cash on hand to use elsewhere.

3. Look at the company in your own screening software. Do you see the same things I see? Are you convinced this is a good trade to make? Find other factors and do additional analysis on these ideas. I like to use moving averages, Donchian chains, varying time frames, and more to do additional analysis.

4. How correlated is this company to the general market? How about to other factors like interest rates, oil prices, gold, etc? Do you want this type of correlation in this trade? Sometimes the answer is yes, sometimes it's no. Pick and choose which ideas work for you.

5. Not every trade is a winner. Stick to your sell discipline when things break down.

6. When trades are winners, it's easy to not take profits in hopes that the stock continues the trend you've bet on. Stick to your sell discipline when you're in the green as well - it may be hard, but developing discipline and consistency is key.


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Posted to Trade of the Day on Sep 30, 2015 — 12:09 PM
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5 star all the way. Your insight and knowledge is very helpful. Analysis, charts and conclusions are sound.
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