Clearly in the energy sector it has been a huge struggle for exploration and production stocks, as well as the oil services stocks. One area that has consistently outperformed this year is the refining stocks. Despite the big runs ups, the analysts at Deutsche Bank think that the third quarter’s earnings results will continue to be outstanding.

The Deutsche Bank team certainly acknowledges that the stocks have had a good move this year, and they note a multitude of near-term headwinds that could slow down the refining juggernaut and set up some profit taking. With all of that in mind, they note the still reasonable valuations, the flat crude pricing and strong gasoline demand as fundamentals that warrant continued stocks purchases.

Deutsche Bank has four stocks rated Buy, and two are the firm’s top picks now.

Marathon Petroleum

This top refiner rolled over some after earnings and may be offering an outstanding entry point. Marathon Petroleum Corp. (NYSE: MPC) has a diversified business that operates through Refining & Marketing, Speedway and Pipeline Transportation segments. The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States that refine crude oil and other feedstocks. It also distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale.

While acknowledging that the company’s margins may have compressed some in the first half, many on Wall Street also expect strong revenue contribution from the assets acquired from Hess. In the most recent quarter, revenue was down 24% on a year-over-year basis to $20.6 billion, but net profit slid only 3% to $826 million. The company also raised the dividend a split-adjusted 30%.

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Marathon shareholders are paid a 2.37% dividend. The Deutsche Bank price target for the stock is raised to $65 from $62. The Thomson/First Call consensus price target is higher at $68.07. Shares closed Wednesday at $54.50.
Phillips 66

This top refiner has had an up-and-down trading year, and any pullback may be the time to buy or add shares. Phillips 66 (NYSE: PSX) is a diversified energy manufacturing and logistics company with a portfolio of Midstream, Chemicals, Refining and Marketing and Specialties businesses. It processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company’s master limited partnership, is an integral asset in the portfolio. Headquartered in Houston, the company has 14,000 employees and $50 billion of assets as of June 30, 2015.

The company is geographically diversified and the 15 refineries spread around the country enable it to participate in various location specific market opportunities and also provide an advantage over region-specific competitors. Phillips 66’s refineries are integrated with transportation, marketing and commercial operations that provide crude supply flexibility. These refineries benefit from strong margins due to low feedstock costs thanks to higher proportion of onshore crude sources, which are substantially cheaper than seaborne crudes. Phillips 66 also owns or has interests in three refineries in Europe and one in Asia.

Phillips 66 investors are paid a very solid 2.77% dividend. The Deutsche Bank price target is $100, up from $98. The consensus target is $93.38. The stock closed Wednesday at $80.80.

Tesoro

This is one of the top picks in the industry at Deutsche Bank. Tesoro Corp. (NYSE: TSO) is an independent refiner and marketer of petroleum products. Through its subsidiaries, it operates six refineries in the western United States with a combined capacity of over 850,000 barrels per day and ownership in a logistics business that includes a 36% interest in Tesoro Logistics and ownership of its general partner. Tesoro’s retail-marketing system includes more than 2,200 retail stations under the ARCO, Shell, Exxon, Mobil, USA Gasoline and Tesoro brands.

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The company continues to be plagued by delays in a detailed government review of Tesoro’s proposed $210 million railport project in Washington state. Now it appears a final decision will not happen until 2016, according to a state council’s published schedule. The 360,000 barrels-per-day project would be the biggest in the United States, moving domestic and Canadian crude via rail to Washington’s Port of Vancouver, where it would be loaded onto vessels to supply West Coast refineries that are located mainly in California.

Tesoro investors are paid a 1.91% dividend. The Deutsche Bank team loves the multiple discount and raised the price target from $113 to $123. The consensus target is $116.92. The shares closed most recently at $104.95.

Valero Energy

This is other top refining pick at Deutsche Bank. Valero Energy Corp. (NYSE: VLO) has 56% of companywide refining capacity located in the U.S. Gulf Coast, which makes Valero well positioned to benefit from the ongoing infrastructure debottlenecking of inland crude oil supply in 2015 and beyond. Some Wall Street estimates have the company generating an astounding free cash flow compounded annual growth rate of 24% from now to 2016.

Numerous Wall Street analysts have cited the big pile of cash the company has, and they are especially interested in possible mergers and acquisition activity in both refining and midstream assets. The company reported solid second-quarter results of net income from continuing operations of $1.4 billion, or $2.66 per share, in the second quarter of 2015 compared to $651 million, or $1.22 per share, in the second quarter of 2014.

Valero investors are paid a 2.37% dividend. The Deutsche Bank price target is lifted to $82 from $75, while the consensus target is $77.21. Valero closed Wednesday at $67.87.

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Are the refiners getting up there in valuation? The answer is yes, but the companies have pulled back from 52-week highs and are poised to keep the winning ways going. While most of the huge money has been made, total return investors looking for a degree of safety can still buy these top companies now.

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