Rules of the Game: Skimming the Cream

 | Mar 05, 2013 | 11:00 AM EST
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For me, it's never about somebody's opinion regarding a stock. It's never about something I hear on television, and never about a panic-stricken exit from a stock after just one day of selling.

Instead, it's about running screens. Then it's running some more screens. Then -- well, you get the idea.

On Monday, I wasn't worrying too much about the market's early selling, nor its subsequent rally into positive territory. I just went about my normal routine of cycling through my various screens, set to yield stocks with top fundamentals and/or technicals. In the past, I had tended to focus on smaller, more volatile names that were often difficult to hold -- but, more recently, I've turned my attention to larger stocks that are generally more suitable for an individual stock portfolio.

A couple of large-cap energy-sector names were at the top of my performance screen, and one of them was Marathon Petroleum (MPC). The stock is trading at new highs, and I realize that, for most, that is not the ideal time to buy. But this certainly won't preclude me from watching the stock.

First, the fundamental case: This company, which specializes in fuel transportation, refining and marketing, debuted on the NYSE in July 2011. The recent timing of the initial public offering is significant, because young companies -- even spinoffs like this one -- are frequently among the market's best price performers.

Earnings are seen growing 6% this year, to $10.35 per share. That's expected to contract somewhat next year, to $9.53 per share. The stock has a dividend yield of 1.8%.

So, here's the situation on the technical side: The stock bolted 5.6% Monday, to $88.79, a new closing high. That's 25.4% above its 50-day moving average, and 63.2% above its 200-day moving average. It's frothy, to be sure. A pullback to either of those price lines could offer a new entry point, as could other technical formations, such as three or four weeks with closes about 1% apart or less.

The other name is fellow refining and marketing specialist Valero (VLO), which is trading at multiyear highs. Like Marathon, these shares are a bit too extended to be a reasonable buy candidate at the moment, but it's another one worth watching. Earnings are expected rise 1% both this and next year. While that's certainly not explosive growth, stocks can show good price appreciation even without big profit climbs.

Valero is a somewhat volatile stock, with a beta of 1.39. A glance at a weekly chart will show you some occasional wide intraweek price swings.

While I've noted both of these stocks on my scan, be aware that you shouldn't load up your portfolio with companies that are too similar to one another. These two companies are in fairly similar businesses, so if you want some energy exposure in your portfolio, it's best to choose one or the other (or neither, as the case may be).

Neither of these companies is due to report earnings again until late April or early May, so there is some time to watch how they perform in the meantime. Of course, industry or economic news could send any stock up or down in a heartbeat, so keep an eye out for this as well.

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