All American Investor
Frontier Oil Corp (FTO) is an independent energy engaged in crude oil refining and wholesale marketing of refined petroleum products. The company has grown profits and dividends in excess of 30% annually over the past five years though its return on equity has declined dramatically from 40%+ to the 10-11% range. While profits fell significantly in 2008 and 2009, earnings are recovering in 2010 and should continue to grow as a result of:
(1) an aggressive capital expenditure program that has dramatically increased both the capacity and performance of its refining facilities,
(2) its ability to process heavier, less expensive types of crude oil while still producing higher value added refined products,
(3) wider margins resulting from stabilizing demand and lower raw material, freight and other costs,
FTO is rated B+ by Value Line, has a 28% debt to equity ratio and its stock yields 1.4%.
Note: FTO stock has been a disappointing investment having traded basically flat since March 2009. Indeed, it is trading below its November 2008 trading high (green line) and recently has been trading below the March 2009 level. The Aggressive Growth Portfolio owns a one half position in FTO. The stock has a Buy Price of $13 and is now trading below that level. I elected not to put it on the Buy List because of its lagging performance; and, in fact, if the company doesn’t raise its dividend by year end, it will violate our dividend growth parameter and accordingly will be Sold. The stock’s current Sell Half Price is $45.
Original content Bob DeMarco, All American Investor
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