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Stocks That Will Benefit From Lower Gas Prices

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Pay Attention To Stocks That Will Benefit From Lower Gas Prices

Falling Gas Prices

As gas prices drop below three dollar per gallon, there are a number of stocks that will benefit from lower gas prices, which increases consumer’s purchasing power. Some are obvious, such as retail stocks, while others are not so obvious, such as shipper and restaurant stocks. Of course, there will also be some losers, such as oil exploration and production companies; however, the winners when fuel prices fall far outpace the losers, and there is a substantial economic benefit to the United States economy since oil is what the economy runs on.

Each penny decrease in gas prices puts approximately 1 billion dollars into consumer’s pockets over the course of a year. With United States national average gas price down 25 cents since the fall of 2013, consumers will have billions of additional dollars to spend during the 2014 holiday shopping season. Even with an economy that is approximately $17.5 trillion, the billions of additional dollars made available to consumers due to lower gas prices will impact specific sectors of the economy in a positive way, as consumers spend more money. Additionally, fuel-sensitive businesses will save on operating costs as transportation fuel prices fall, increasing their bottom line earnings.   To take advantage of this economic stimulus provided by falling fuel prices, traders and investors need to focus on sectors of the economy that benefit the most from consumer spending and those that are sensitive to the price of transportation fuels. Within these sectors, there are stocks and Exchange Traded Funds (ETFs) that provide exposure to companies that will likely benefit from lower fuel costs.

Stock Sectors That Will Benefit From Lower Gas Prices

Gas Prices Consumer SpendingHere is a rundown of the sectors that will benefit immediately from lower fuel costs. The retail sector will benefit from lower gas prices, as consumers have more discretionary income to spend at stores and online. The restaurant sector will also benefit, as consumers have more money to go out to eat and less reason to stay home with cheaper gas.   The transportation sector will be a beneficiary of lower fuel costs, since the companies in the transportation sector have cost structures that are highly dependent on the price of petroleum products, from diesel to jet fuel to gasoline, and a significant decrease in fuel costs will boost their earnings significantly.

Keep in mind that other parts of the economy will also benefit if fuel prices remain low for a long period of time, such as the automobile sector and housing sector. There is nothing like low gas prices to get people out shopping for a bigger automobile (i.e., pick-up truck or sport utility vehicle) and for a house out in the suburbs. Lower gas prices may also eventually cause an uptick in spending on entertainment, as the cost of getting to entertainment venues will drop along with falling gas prices and consumers will have more money in their pockets to spend on entertainment.

How To Trade and Invest In Stocks That Will Benefit From Lower Gas Prices

TJX CorpThere are a number of ways to trade and invest in stocks that will benefit from lower gas prices. You can either buy stocks directly or buy Exchange Traded Funds that focus on stock sectors that will benefit from lower gas and transportation fuel costs. You can even buy call options for stocks that are poised to report increased profits, due to surges in revenues from consumers or spikes in earnings that are a result of cost savings from transportation fuels that are a big part of their cost structure.

Some of the premier retail stocks, such as Macy’s, Inc. (NYSE: M), Nordstrom, Inc. (NYSE: JWN), and TJX Companies, Inc. (NYSE: TJX) will likely benefit from lower gas prices.

If you would rather spread out the risk among numerous retail stocks, consider Exchange Traded Funds that are focused on the retail segment of the stock market. SPDR S&P Retail ETF (NYSE: XRT), Market Vectors Retail ETF (NYSE: RTH), and PowerShares Dynamic Retail ETF (NYSE:   PMR) provide exposure to the United States retail industry via holdings in dozens of retail stocks. If you want to play the retail sector on the aggressive side, consider Direxion Daily Retail Bull 3X Shares (NYSE: RETL) which holds retail stocks and is leveraged at three times (3X), meaning it should move at 300% the price moves of the underlying stocks that it holds that are included in the Russell 1000 Retail Index.

To gain exposure to the restaurant sector, there are numerous restaurant stocks, such as Darden Restaurants, Inc. (NYSE: DRI) and Chipotle Mexican Grill, Inc. (NYSE: CMG), as well as a restaurant and entertainment ETF called PowerShares Dynamic Leisure & Entertainment ETF (NYSE: PEJ).

While the transportation sector as a whole will benefit from lower transportation fuel costs, companies such as FedEx (NYSE: FDX) and United Parcel Service, Inc. (NYSE: UPS) should be big winners, due to their relatively fixed business models that rely heavily on transportation fuels. The SPDR S&P Transportation ETF (NYSE:   XTN) provides broad ETF exposure to the transportation sector.

Reasons To Be Optimistic That Stocks Will Benefit From Lower Gas Prices

Of course, there is no guarantee that gas prices will remain low long enough to benefit the companies and sectors that traditionally benefit when gas and transportation fuel prices take a plunge. However, increasing fuel economy efficiency in the United States should help keep demand for gasoline and diesel in check for several years to come.   In addition, there is a lot of crude oil supply that is coming on-line that should come to market over the next several years that will increase the supply of crude oil and put downward pressure on its price, which will also put downward pressure on gasoline and diesel prices. These off-line sources include Iran, which has dramatically reduced output due to sanctions, Libya, which has had trouble producing oil due to internal conflicts, and Mexico, which recently opened up its oil sector to foreign investment. Due to these factors, the odds are that gasoline and diesel prices will remain low, or even fall further, in coming years, which makes investing in stocks that will benefit from lower gas prices an investment strategy worth pursuing.

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