Valero is probably one of the few companies in the energy sector that has a positive catalyst that could drive up its stock, now trading at $25 a share, down from a $31 a year ago. The stock traded as high as $71 in 2008. Some industry watchers believe the stock is destined to hit $31 within a year.

"Valero is poised to benefit from the unprecedented secular changes occurring in the North American refining space, driven by increasing crude oil production from U.S. shale plays and the Canadian oil sands," says Tanjila Shafi, analyst at S&P Capital IQ, who rates the stock a "strong buy," with a 12-month price target of $31 a share. Most of this oil is headed toward the Gulf Coast, she notes, giving a competitive edge over its peers. Valero is the largest refiner in the Gulf, with almost 60% of its operating capacity located in that area.

Valero, based in Texas, owns and operates 16 refineries in the U.S., Canada, the United Kingdom, and Aruba. It produces gasoline, jet fuel, asphalt, petrochemicals, lubricants and other oil-refined products, which it markets though its 6,800 retail and wholesale stores. Valero also owns 10 ethanol plants with a total output of 1.1 billion gallons a year.

Valero's big presence in the Gulf enables it to transport refined products globally, and to obtain cheaper feedstock, giving it a cost advantage against its competitors, says Shafi. The company's first-quarter refinery througput volume averaged 2.5 million barrels a day, up 21% from 2011's first quarter. Shafi estimates second-quarter volume at 2.59 million barrels.

The analyst expects earnings to continue improving through 2013 on a better economic outlook and Valero's strategic initiatives. Shafi forecasts earnings to jump to $5.04 a share in 2013, up from 2012's estimated $3.98 and 2011's $3.69. Adding to the stock's allure is its dividend yield of 2.52%, one of the highest dividend yields among its peers. On May 3, 2012, Valero boosted its quarterly dividend to 15% a share, up from 5 cents a year ago.

Paul Y. Cheng, analyst at Barclays Capital, rates Valero as "overweight," with a price target of $31 a share.  Valero stock's current price "offers a compelling entry point, with limited downside risk," says the analyst, after its underperformance relative to its peers and "inexpensive valuation." Cheng notes that the global refining market outlook continues to improve, versus last year's, partly due to the "waves of refinery shut-down announcements, as well as slightly better economic environment, particularly in the U.S."

In sum, "we believe the medium-term outlook for global and U.S. refining markets has brightened compared to six months ago," says Cheng.

Fadel Gheit, senior oil industry analyst at Oppenheimer who rates Valero as outperform, says the leading refiner's financial results for 2012 will benefit from contributions of two new refinery projects that are expected to come on line in the next few months. Valero, he notes, "continues to benefit from wide crude differentials, lower operating costs and strong gasoline demand and diesel export sales -- which more than offset the impact from weak domestic demand."

For Valero, the major potential catalysts for growth, analysts note, include the strong global demand for refined petroleum products, the company's growth projects in development, and a solid balance sheet.  n these times of financial stress in the industry, demand growth and a robust balance sheet are, indeed, a godsend.  

Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.