Right about now, everyone has had their fill of news reports on quickly rising gasoline prices. The question for investors is; "What will our portfolio do?"
Will Apple (AAPL) sell more or less products? Will Exxon Mobil (XOM) see increased earnings that will increase its PPS?
None of us can escape the rising prices at the pump, but we can take positive actions to profit from the environment and in my view, the market recovery and economic recovery will not be derailed.
Our recovery might look different, but will not be stopped.
Let's think outside the box for this article and take a step back away from the pumps and try to come up with some proactive steps that we, as investors, can take right now that could actually increase our portfolio value while at the same time mitigate some of the risks.
Some Short Term Effects Of High Gasoline Prices
Obviously, ultra high prices at the pump will affect various sectors of our economy as well as various sectors of the market as well as individual stocks. One area of concern would be consumer spending. Based on current income levels, consumers will have a choice to make; spend more of disposable dollars on needs or wants?
In a climate like this, which I have personally seen since 1973, there will be an initial knee jerk reaction by consumers who will basically curl up in a little ball, go into a shell, and not spend any money unless they need to. First and foremost will be sectors that thrive on discretionary spending.
I would avoid owning shares in Airline stocks. As this article suggests, stay away from Delta (DAL), US Airways (LCC) and Republic Airways (RJET) which have seen PPS increases from an economic recovery, but have also been selling off as gasoline prices have spiked.
The article states,
Fuel costs make up 40% of the expenses for an airline. Already airlines stocks are starting to fall. Up 43.20% year to date, US Airways has fallen 18.34% over the last week of trading. For 2012, Republic AIrways is up 49.85% but down 9.67% over the last week. The same holds true for Delta Airlines. It has fallen 10.53% over the last week after gaining 19.78% in 2012.
I would take this one step further. Do not buy any airline stocks now. I do not believe they have bottomed and since they not only face increased operating costs, I believe they will lose many of the holiday, and summer vacation travelers who will stay closer to home.
I would also be leery of owning shipping or delivery services stocks like FedEx (FDX) or United Parcel Service (UPS) as their earnings will be negatively affected by rising operating costs and a decrease in demand for their services while the economy adjusts.
As this article suggests, "You're going to see a lot more staycations this year," says Michael Lynch, president of Strategic Energy & Economic Research. "When the price gets anywhere near $4, you really see people react." To me, owning stocks like Marriot (MAR), Hyatt (H), or Host Hotels (HST), which is a REIT by the way, makes little sense at this time.
These are obvious losers in an ultra high gasoline price environment and as we look at these we can envision other related sectors that should be avoided.
So how do we profit in this environment?
Actions To Take Now
The stocks that jump out at me right now are ones we probably already own. Exxon Mobil, and Chevron (CVX) could be big winners and I would absolutely own them during this period.
Both of these stocks have seen up-trends for various reasons; escalating tensions in the Middle East, recent oil discoveries, and of course rising oil prices which inevitably show up as increased profits for "big oil". If you do not own them already, think of adding several now, to take advantage of the environment.
Since we could be staying close to home for awhile, there are some stocks that will benefit from "feathering our nest", so to speak. Fixing our homes up to make them more pleasing, more comfortable, and even more fun to stay close to.
I am leaning towards stocks like Home Depot (HD) and Lowe's (LOW) which could benefit from folks staying at home and fixing up to feel better about it. They are also seeing upward trends with a stronger economy, as well as a housing recovery, so these stocks have various tailwinds that could propel our portfolios higher
Both of these stocks have seen increased share prices, and I believe they could benefit even more in our current climate. Especially given the fact that our economy is improving along with housing.
While we are staying close to home, we probably want to have a better experience with connecting to others in the new ways as well. I am almost reluctant to toss this out there, but let's face it, Apple could almost certainly benefit from the current climate of staying close to home and still reaching out for new experiences.
Given the pipeline of new "fun" products that Apple has coming out (like the iPad 3) we simply cannot ignore the impact of even more discretionary dollars being spent on the 'toys" they continuously bring to market!
With a remarkable run up in PPS, we could see a pullback of course, but i also believe they will benefit from the "pump price issue" and see even faster PPS increases in the near term. If you do not own AAPL, I would ask why not?
Finally, lets not forget the power of the internet itself. I mean why leave home when you don't have to? Especially when having a burning desire to go shopping right? Why venture out the extra 25 miles today, when with one click of a mouse we can secure a retail purchase right from the comfort of our newly spruced up den or home office?
I cannot think of a better stock to own right now, that would fill this "need" than Amazon.com (AMZN) can you?
Over the last 6 months or so AMZN's PPS has dipped with squeezed margins and higher valuations, but it is still pounding out revenues, and during this environment, they could benefit on their bottom line just as swiftly as their top line growth has.
I would consider Amazon.com as almost a value stock right now especially as gasoline prices continue to spike.
My Opinion
Many of us have been down this road before. Gasoline shortages (which I do not see happening this time). $75.00 to $100.00 to fill some of the larger gas tanks. An extra $100-$200/month in expenses just to get to work, etc, etc.
We can think of zillions of ways our lives will be affected I suppose, and we can also think of ways to insulate our portfolios as well as profit from the situation. I have touched on several that I believe could see a significant upside PPS potential.
Some stocks might even fit into our core holdings, but I would create another basket; "Pump Price Profit Plays".
Maybe we can even make a movie with that title.
Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.
