Rank: 16 Ticker: VLO Market value: $37 billionWHY IT'S HOT: Recognizing the yawning gap between the cost of building a new refinery and how the market was pricing existing ones, Valero founder Bill Greehey went on a buying spree in the late 1990s, building Valero into the nation's largest independent refiner. It proved to be a brilliant strategy. No new refineries have been constructed in the United States for 30 years, and the existing facilities are operating at or near full capacity.
CHALLENGES AND OPPORTUNITIES: With gasoline prices around $3 a gallon and interest rates rising, cash-strapped consumers may finally cut back on their driving. Yet, while Valero can't produce much more gasoline than it's now making, it's in a good position to make more money on each gallon sold. That's because Valero specializes in refining "heavy sour" crude at a time when heavy oil trades at a discount to the easier-to-refine "light sweet" variety.
STOCK OUTLOOK: At its recent $60, Valero stock trades at a P/E of only seven (vs. nine and 12 for rivals Sunoco and Frontier Oil). One reason for that discount is that investors think Valero could do a better job controlling costs. Chi Chow, an analyst with oil and gas investment firm Petrie Parkman & Co., thinks incoming CEO Bill Klesse will prove more shareholder-friendly than Greehey by keeping down costs better, selling underperforming assets and undertaking more share buybacks. Were the market to reward Valero with a P/E of just nine, that would translate to a stock price of $82 (a 37 percent gain) based on projected 2006 earnings.