Venezuelan Tariffs Could Power These 3 Diesel-Driven Winners

Key Points

• New tariffs on Venezuelan oil could cause a bottleneck and spike in prices for diesel, benefiting companies reliant on the price of the fuel.
• From refiners to diesel engine manufacturers, the fundamental themes make sense for investors to consider.
• Wall Street analysts and institutional buyers have reiterated the bullish view for this space moving forward.

The energy sector has been one of the most cautious areas of the stock market recently, as President Trump started to roll out more trade tariffs in this and other sectors that are dependent on the price of oil and its swings. The most recent hit has come to Venezuela, where the penalty comes through a 25% tariff for all countries and companies that deal with Venezuelan oil. While that may seem bearish overall, it actually creates a massive opportunity.

This opportunity can only be taken by those who know what they are looking for, and this is where Venezuelan oil makes a difference. Compared to West Texas Intermediate (WTI) oil, which is mostly used for gasoline due to its light and sweet nature, the heavy and sour oil coming out of Venezuela makes it suitable for other types of products, such as diesel. Bottlenecks forming in this heavy oil could spike margins and earnings for the companies that deal in this space.

Companies like Valero Energy Co. NYSE: VLO and Marathon Petroleum Co. NYSE: MPC are equipped to refine heavy, sour crude into diesel fuel. From there, Cummins Inc. NYSE: CMI enters the picture as a key player manufacturing diesel engines and related machinery.

Cummins Stock Gains Momentum on Trade Tariff Speculation

As soon as the potential for trade tariffs started to hit the newswire around the markets, investors were left scrambling to find out what the effects might be on the different industries of the market. However, some analysts on Wall Street had already connected the dots moving forward on this very question.

As of February 2025, those from Evercore decided to reiterate their Outperform rating for Cummins stock and boost their valuation targets to a high of $451 per share, significantly higher than their previous $408 valuation views on the stock. This is not only an initial vote of confidence but also a major sign of what could come in the future.

Compared to where the stock trades today, this valuation means not only that the stock needs to make a new 52-week high price but also that there is an implied rally of as much as 37.5% in the coming months. These views make sense as the company could soon be exposed to more demand breakouts for its diesel engines and machinery if tariffs end up creating bottlenecks.

Because of this view, institutional buyers from UBS Asset Management decided to boost their holdings in Cummins stock by as much as 6.5% as of February 2025, bringing their net position to a high of $566.9 million today, or 1.2% ownership in the company.

Why Valero Energy Could See Earnings Upside Amid Industry Shifts

Looking at Valero Energy’s valuation metrics, investors may notice the market could be pricing in the wrong assumptions about the company’s future earnings.

With a current P/E ratio of 15.8x, Valero trades at a steep discount to the energy sector’s average of 47.3x.

This discount might have been justified a couple of quarters ago when the industry remained uncertain about oil prices and policy.

However, the situation has become a bit clearer, and these recent tariff announcements now show everyone the path forward regarding the heavier Venezuelan oil.

Part of that belief might be why up to $2.6 billion of institutional capital made its way into Valero Energy stock over the past quarter, reiterating the thesis that a bottleneck for these refiners of heavy oil might bring about better earnings in the future.

Marathon Petroleum's Diesel Bottleneck Thesis Gains Momentum

Now that Marathon Petroleum shares are trading at 68% of their 52-week highs, the risk-to-reward ratio becomes immensely favorable for those looking to invest in the company’s story. This story includes a massive earnings per share (EPS) growth rate in the coming quarters.

Based on Wall Street analyst forecasts for EPS, Marathon Petroleum could report up to $2.74, a significant boost from today’s reported $0.77 EPS.

Considering that stock prices are mainly driven by underlying EPS, this forecast sets the path forward for investors to connect the dots on this diesel bottleneck thesis.

This view also explains why analysts at Wells & Fargo decided to keep their Overweight ratings as of March 2025, alongside a valuation boost to $185 per share to call for as much as 23.5% upside from where the stock trades today.

All of this reiterates the risk-to-reward ratio as well as the bullish thesis on diesel refiners and prices.