The energy sector has taken a beating this year, and despite continued cuts in production from the OPEC nations and ongoing geopolitical issues in the Middle East, especially surrounding the Strait of Hormuz and the safe passage for oil tankers, the price for the black gold has fallen back to the mid $50s per barrel. With sector underperformance versus the S&P 500 at historic highs, it may be time to start adding some positions.

One way to play the energy sector is to buy the refiners, and with the price of oil and in turn gasoline actually falling over the past few months, consumer use may jump. While the summer driving season is almost over, there may be plenty of room for a sector rally.

The refiners provide a somewhat safer way for investors to be involved, and in a new Goldman Sachs research report is positive on four top companies, all rated Buy, and one is on the firm’s prestigious Conviction List.

Marathon Petroleum

This is the largest refiner in the United States, and it is on the Goldman Sachs Conviction List of top buys. Marathon Petroleum Corp. (NYSE: MPC), one of the largest independent petroleum refining and marketing companies in the United States, is based in Findlay, Ohio. It owns seven refineries in the United States with total throughput capacity of around 1.7 million barrels per day.

The company operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

The company bought rival refining giant Andeavor last year for $23.3 billion in the biggest-ever deal for an oil refiner, creating the largest independent fuel maker in the United States. It was one of the biggest mergers in 2018.

Following the deal, Marathon became the largest operator of refining capacity in the United States, and management believes the company can achieve the $1 billion in synergies that it suggests. In addition, many on Wall Street give the company no credit for the possible International Maritime Organization change, which implies additional potential upside.

Shareholders receive a robust 4.58% dividend. The Goldman Sachs price target for the shares is $70, while the Wall Street consensus target is higher at $78.57. The shares closed Wednesday at $46.33.

Par Pacific

This smaller capitalization play is an under-the-radar refining company. Par Pacific Holdings Inc. (NYSE: PARR) owns and operates energy and infrastructure businesses. It operates through the following three segments.

The Refining segment involves the production of sulfur diesel, gasoline, jet fuel, marine fuel and other associated refined products. The Retail segment engages in the sale of gasoline, diesel and retail merchandise, while the Logistics segment owns and operates terminals, pipelines, single-point mooring and trucking operations to distribute refined products.

Goldman Sachs sees upside to the current consensus estimates for the company, and it has set a $29 price objective. The posted consensus target is $26, and shares were last seen trading at $21.73.

Phillips 66

This extremely diversified energy company has a long and successful operating history. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.

The company is able to benefit from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that aren’t ideal MLP assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.

Goldman Sachs loves the company’s corporate structure and potential, noting this in the report:

We continue to have a positive view on Phillips 66, and note it is the only large cap refiner under our coverage where we see upside to 2019 consensus estimates. In our view, the company has a peer-leading execution track record with high business diversification and integration, as well as a strong backlog of projects to promote further growth and a shift into the Midstream and Chemicals business segments.

Phillips 66 has one of the highest paid CEOs in America.

Investors receive a 3.74% dividend. The $111 Goldman Sachs price objective compares to the $118.36 consensus target and the most recent close at $96.17.

Valero Energy

This Wall Street and Goldman Sachs favorite is a solid play for conservative balanced accounts. Valero Energy Corp. (NYSE: VLO) is the largest independent petroleum refining and marketing company in the United States. It is based in San Antonio, Texas; owns 13 refineries in the United States, Canada and Europe; and has total throughput capacity of around 2.5 million barrels per day.

Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant.

Valero sells its products in the wholesale rack or bulk markets in the United States, Canada, the United Kingdom, Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names.

Investors receive a 4.95% dividend. Goldman Sachs has an $87 price target, and the consensus estimate is up at $101.75. The shares closed at $72.76.

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These four top stocks are way down from 52-week highs. Three of them pay solid dependable dividends, and all offer investors a way to play the energy sell-off with a much lower risk profile. For balance accounts looking for growth and income, these are outstanding plays.

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