Does Delta Air Lines Know Something You Should Know About Refining Stocks? Better Read This First
If you’re the owner of some big automobiles, and maybe a motorboat or an airplane, you’re no doubt nodding in deep understanding of the frustration that drove Delta Air Lines (DAL) CEO Richard Anderson to buy a refinery that makes jet fuel.
Cut out the middleman! Secure your feedstock at a reasonable price! Stop getting screwed!
Alas, there’s a long history of industries vertically integrating, and it’s not all happy. Newspaper companies – remember newspapers? – decades ago loaded up on forest acreage and paper mills to hedge against newsprint price hikes. Ford (F) built the Rouge Plant so it could make its own steel and plastic and power, even, employing 100,000 there at one point.
But few companies are so talent-laden that they can excel at both their main business and also do a bang-up job managing a supplier company. Ultimately, they get out-managed and return to what management nerds like to call core competencies. Anderson may be the smartest guy in the airline business (it doesn’t matter, Einstein couldn’t run a great airline), but it’s doubtful he’s going to also be the smartest guy in refining, or even in the top ten.
The refining industry may at times be a great place to invest. But better to think like a refining CEO than an airline CEO.
YCharts recently analyzed the gasoline market in a two-part series, seen here and here, and the complexities will likely send most investors looking for something simpler to put money into. Lucky for you, you don’t run an airline.