Oil refiner Valero (VLO) plans to exit the retail business by auctioning off its gas station and convenience stores segment. The segment consists of nearly 1,000 locations in the U.S. and nearly 800 in Canada. The auction could fetch as much as $3.5 billion, as private equity firms and major convenience stores loom as the likely bidders, Bloomberg reports.

We’re actually a bit surprised by the move, but we think it has some interesting consequences. Traditionally, gas stations have provided a natural buyer and channel for refined gasoline, especially during times of weak demand. However, we think this move signals Valero’s confidence that the refining business doesn’t need the predictable earnings stream and distribution network of gas stations to balance its highly cyclical nature. Demand for petrochemicals, lower natural gas costs, and the resurgence of the domestic oil industry may be leading to higher trough period margins for the industry.

Though there aren’t many synergies between running a refinery and running a convenience store, we like the ability to distribute gasoline through an established channel. We’re also fans of the strong earnings that result from the convenience store business model. In other words, we’re not very excited by its plans to pursue the auction.

We’ll continue to monitor new developments, but at this time, we believe Valero’s shares are fairly valued. Our favorite name in the space is Phillips 66 (PSX), which we received in the portfolio of our Dividend Growth Newsletter when it was spun off from ConocoPhillips (COP).

What Worked in the Stock Market for Long-Term Investors?

Extensive research has found that the companies with predictable revenues and earnings outperform the market average; they also suffer lower probability of loss. As a matter of fact, this kind of companies are exactly what Warren Buffett wants to buy and hold forever. Please read the research about what worked in the stock market:

Part I: What worked in the market from 1998-2008? Part I: Predictability Rank
Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety

More Gurufocus Links

Latest Guru Picks	Value Strategies
Warren Buffett Portfolio	Ben Graham Net-Net
Real Time Picks	Buffett-Munger Screener
Aggregated Portfolio	Undervalued Predictable
ETFs, Options	Low P/S Companies
Insider Trends	10-Year Financials
52-Week Lows	Interactive Charts
Model Portfolios	DCF Calculator
RSS Feed	Monthly Newsletters
The All-In-One Screener	Portfolio Tracking Tool