Kerkorian's Refined Taste

On Oct. 19, mega-financier Kirk Kerkorian bid for a chunk of Tesoro at a hefty premium to the stock price at the time. This sounds great on the surface, but the question is, why? Practically everyone on Wall Street is bearish on the refiners because of weak margins. So what does Kerkorian know that no one else does?

The legendary investor is thinking longer term, Cramer said. Refiners are prone to six lean months in the fourth quarter of one year and the first quarter of the next, which is when gas demand is lower. So there’s a good chance Kerkorian is just taking advantage of the sector’s downtime –even though it is an especially rough one right now – before these refiners bounce back in Q2 2008.

Thanks to Kerkorian there’s some pin action to be had here. If other refiners in the space got the same multiple the billionaire gave Tesoro, they should go much higher. Valero would gain 11%, Sunoco could earn investors 16%, and Marathon Oil would jump 18%. And this is a floor, Cramer said, not a ceiling.

Marathon Oil is Cramer’s favorite of the bunch for two reasons: MRO has more exposure to mid-continent refining, and that region – Kentucky, Illinois, Michigan, Ohio and Minnesota for Marathon – has been outperforming others.

Also, MRO also runs an exploration and production business, which means the company benefits from $90+ oil while the other pure refiners don’t. (Refiners are levered to the crack spread.)

Stick with Kerkorian, Cramer said. The refiners should turn and Marathon is the best way to play it.

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