Low Oil Prices – Winners and Losers

 Oil     With oil and oil related commodity prices at multi-year lows, I thought I would discuss some of the equity groups – and specifically the individual stocks followed here in the blog – which will benefit from these low prices and ones that will likely suffer. The obvious winners will be companies that are large consumers of gasoline and other fuels such as transportation stocks. United Parcel Service will be a major beneficiary, especially with low fuel prices continuing through the heart of its busy holiday season. As UPS delivers Internet gift buying goodies, the cost of operating its air and truck fleets will drop. Shop.org estimates 2014 online holiday sales in November and December to grow between 8–11% over last season to as much as $105 billion. Forbes predicts that online Christmas shopping should approach 50% of all purchases this year, thereby providing a boon for the likes of UPS. Another benefactor in the hauling space is CSX Corp. whose rail and intermodal businesses of moving goods should also benefit from lower diesel prices. Also, CSX is a prime beneficiary of transporting low-cost oil from east coast shale sites to refineries. This traffic should mitigate the reduction of CSX’s coal shipments to utilities who find natural gas generating plants a better bargain than coal. Speaking of which, the equity components of the Select SPDR Utilities EFT should show some positives as fuel costs to generate electricity fall with the price of energy. Oil and related refined products are also key factors to manufacturing costs of feedstock for thebuttonwoodproject’s two chemical companies and, therefore, I am giving a thumbs up to Dow Chemical Co. and DuPont & Co. in this regard and, to a lesser degree, packaging-related input costs for consumer related Kimberly-Clark, Colgate-Palmolive and 3M Co. Farmers who consume fuel to operate their monster combines and tractors may find that cost savings can find their way into new Deere & Co. equipment. And to some extent, contractors who run Deere’s construction and forestry products and Manitowoc’s cranes and lifts may have similar inclinations over the long-run. The sole pure-play retailer on the lists is Foot Locker and hopefully consumers with more money in their pockets from low prices at the pumps will find its way into Foot Locker stores over the holiday season. This new-found money may also help out CVS Health’s front-of-store business, which could use a boost after discontinuing tobacco products this year.

      On the negative side, the energy plays in the three portfolios will face headwinds with falling oil prices: Aggressive choice Hess Corp., income candidate Total, SA and, to some extent, conservative oil-field service provider Schlumberger. Schlumberger will be less effected than the two pure play energy providers, unless the price of oil becomes so low and therefore less economical to get out of the ground absent enough buyers, which may cause some of the major exploration and production companies to cut back on SLB’s services. We’ve seen all the oil service equipment stocks fall in sympathy with oil prices over the past few months based on such prospects. I don’t believe that the price of oil will have an adverse effect on the ETRACS Alerian MLP Index ETF in the income portfolio, as the fees that MLP’s receive from customers for moving and storing oil and gas products should not be materially affected by the cost of the commodities themselves.

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