The price of gasoline is as low as $1.25 a gallon in some parts of the USA. As investors we wonder where are consumers spending the money they are saving on gasoline. What stocks will benefit? 24/7 Wall Street looks at stocks that could benefit from gas price savings.
Face it, unless you live in California, it’s almost been a pleasure to go fill up your vehicle these days. With prices dipping as low as $1.25 in some areas, consumers are banking tons of extra cash, and there is a good chance that money will go elsewhere.
In a new research report, Jefferies analysts believe that consumers will save between $65 billion and $80 billion this year. The data also show that the individuals they surveyed are saving less and spending slightly more than they were a year ago, and they cited dining out, entertainment and shopping at retail stores as higher year over year. While paying down debt and adding to savings still leads the pack, there is still a lot of fresh cash headed toward discretionary spending.
Here are 4 stocks that these folks suggest:
Fogo de Chao: (NASDAQ: FOGO) is a leading Brazilian steakhouse, or churrascaria, which has specialized for more than 36 years in fire-roasting high-quality meats utilizing the centuries-old Southern Brazilian cooking technique of churrasco.
Gap: Gap Inc. (NYSE: GPS) is a leading global retailer offering clothing, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. Fiscal year 2015 net sales were $15.8 billion.
Home Depot: Home Depot Inc. (NYSE: HD) is the world’s largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, Home Depot had sales of $83.2 billion and earnings of $6.3 billion.
PepsiCo: PepsiCo Inc. (NYSE: PEP) products are enjoyed by consumers one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $66 billion in net revenue in 2014, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana.
How Long Will Savings on Gasoline Last?
The price of gasoline is driven by the price of crude oil and crude oil. Crude is current selling for a bit higher than $30 a barrel. Some contend that we will see $50 crude in the near future but Forbes writes that oil prices should fall, even dramatically.
Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.
Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.
Russia and Saudi Arabia have apparently agreed to a production freeze. This is meaningless theater but it helped lift oil prices 37% from just more than $26 in mid-February to almost $36 per barrel last week. That is a lot of added revenue for Saudi Arabia and Russia but it will do nothing to balance the over-supplied world oil market.
As long as crude is cheap the price of gasoline will remain low. Where are consumers spending the money they are saving on gasoline? Persistent cheap gasoline means that consumers will have more money for eating out, fixing up their homes and the occasional vacation. Rather than buying energy stocks in hopes of a rebound think of where you will spend the cash left over after you fill up the car. That will give you a clue about where to invest.