As the commodities markets ebb, the money flowing out of the oil “bubble” is the most notable. What was a long climb to $147 per barrel has since ended with large drops all the way back to $118. Now that oil is losing its steam, the money that was feeding the monster will come back into another sector, and it’s time to start thinking where the next big movement might be.
Sector investing a great way to invest
Analysts and investors alike note that sector investing is one of the most profitable and easiest strategies to play the market. Mutual funds that focus on sector weighing, rather than individual investments, have produced higher returns. This is due to the fact that when a sector heats up, the overwhelming majority of stocks that do business in that sector see higher stock prices. Picking a sector for investment is often much easier than finding an individual stock, as the fundamentals that affect a whole sector are more noticeable, instead of being hidden behind a small entry in a large annual report.
There are many possibilities as to which sector will experience a strong bounce when the oil money falls back into the market. The equities markets are beaten down as a result of the climbing price of oil, which have taken the value out of stocks and pushed it towards the commodities market. When the money starts coming back to the stock market, there are many key industries set for a boost.
Retailers primed for turnaround
Retailers have shed some value as consumer spending slows. High gasoline and food prices are largely to blame for a slowdown in consumer spending, and as these prices fall, it should be expected that shoppers will have more disposable income. Retailers also benefit from the upcoming US holiday season, which is the heartbeat for many retailers who do not turn profitable until the fourth quarter holiday spending kicks in. Though the retail sector may be hurting right now, the seas are turning in their favor. High tide should bring high stock prices.
Automakers benefit from lower oil prices
It should only be natural that lower gas prices will help automakers. Many struggling automobile companies are losing ground due to low mileage cars that are hard to sell to consumers not accustomed to $4+ a gallon gasoline. Couple this with the already falling stock prices, and you have a reason to get in heavy. If oil prices drop even further, to a sub-$100 level, chances are that the whole automobile sector will be shaken up. The best plays are those such as Toyota or Honda, which make smaller compacts and hybrids to cater to eco-friendly and money conscious consumers, but also show a strong roster of trucks and SUVs, which will be easier to sell with lower gas prices.
Airlines and shipping companies see costs dramatically lower
Airlines and shipping companies, such as UPS and FedEx, have taken a beating with higher fuel costs. The two biggest parcel services are finding it tough to compete with government subsidized mail delivery , and it has been difficult for them to pass their costs onto consumers. Airlines are a huge benefactor of lower oil prices and will bounce as oil declines. Whether or not the oil money goes to the airlines is tough to call, but their bottom line should certainly improve with each drop in oil.
Oil refiners make more with lower oil prices
It may be hard to believe, but oil refiners are very much vested in lower oil prices. Profit margins shrink with each uptick in the price of oil, and thus, these companies should perform better as the price of oil drops. Oil refiners are more likely to get a bigger piece of the oil breakdown as it is incorporated in the same industry as the commodity itself. The good news is that oil refiners still have plenty of customers, though gasoline surpluses are hurting their profit figures as of late.