• 5 minutes China Faces Economic Collapse
  • 8 minutes ZeroHedge: Oil And Gas Bankruptcies To Accelerate As $137 Billion Debt Matures Over Next Two Years
  • 11 minutes Trump Will Win In 2020
  • 14 minutes Oil Production Growth In U.S. Grinds To A Halt
  • 6 hours The Belt & Road Initiative: A Wolf in Sheep's Clothing?
  • 5 hours Democrats and Gun Views
  • 6 hours How OPEC and OECD play their role in setting oil price in light of Iranian oil sanction ?? Does the world agree with Iran's oil sanctions ???
  • 3 mins Drone attacks cause fire at two Saudi Aramco facilities, blaze now under control
  • 7 hours Buy Oil Monday?
  • 2 hours Swedish Behavioral Scientist Suggests Eating Humans to ‘Save the Planet’ from Climate Change. What could possibly go wrong?
  • 17 mins Cost of oil
  • 4 hours “Who’s going to bail out the Central Banks?”
  • 3 hours Trump Orders Biofuel Boost
  • 12 hours It's the demand, Stupid
  • 9 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
  • 6 hours Green New Deal Preview in Texas Town
  • 6 hours Used Thin Film Solar Panels at 15 Cents per Watt
Alt Text

Rystad: Low Prices To Send Oil Services Market Into Recession

Following three consecutive years of…

Alt Text

Oil Rises On Saudi Shakeup

Oil prices rose on Monday…

Martin Tillier

Martin Tillier

More Info

Premium Content

Buy This Stock To Take Advantage Of Both Oil And Equity Weakness

As stock markets and oil prices tumble in tandem, savvy investors will be aware that such a situation creates some opportunities.

Some of the fall in oil prices is down to increased supply of crude, and no doubt some of the stock market decline is a natural and probably healthy correction after 18 months of solid gains.

There is, however, one fear that is driving both lower: worry about a global slowdown, particularly in Europe and China. If that materializes, most economies will be affected, but recent data suggest that the U.S. economy is so far continuing on its path of recovery. The ideal investment opportunity, then, would be one that is poised to benefit from lower oil prices, but is more connected to the U.S. economy than the global one.

Fortunately, there is a sector that fits that description.

It is fairly obvious that transportation stocks would benefit from lower oil prices. As much as we may hear about natural gas and electric-powered vehicles, the U.S. Energy Information Agency (EIA) still estimates that 92 percent of the energy used for transportation in the U.S. comes from oil.

Related: Gasoline Prices Look Set To Stay Low

That said, though, a careful consideration of the overall picture would suggest that not all transportation stocks are good investments, so broad based strategies such as The SPDR S&P Transportation ETF (XTN) should be avoided, as it is heavily invested in railroads and major airlines.

The falling oil price could have a devastating effect on railroads. Most have been frantically diverting resources to the very profitable business of hauling oil that has been produced as a result of the much talked about “shale boom” in America. That oil is being produced in areas that aren’t traditional oil centers, so pipeline infrastructure is lagging, creating great business for railroads.

The problem is that production costs are high in many of those oilfields, often over $80 per barrel of oil. If oil prices fall much further, it would be reasonable to expect production, and therefore rail transportation, to slow. The major airlines, similarly, could benefit from lower fuel costs, but a reduction in international travel if the rest of the world slows down would also affect them negatively.

Related: Commodities Suffer As Oil And Gas Takes Rail Priority

The trucking industry, however, is heavily dependent on oil and is, by definition, more of a domestic play for U.S. investors. There would be some concern about slowing business in the event of a true global recession and that would rule out international giants such as Fedex (FDX) and UPS (UPS) as too risky. Internet Truckstop’s Market Demand Index, a measure of trucking volume in the U.S., however, continues on an upward path and that has been reflected in rates with overall equipment rates up 9.5 percent on a year-to-year basis this week.

In other words, trucking companies with mainly U.S. domestic exposure are doing fine and face the prospect of lower fuel costs in the near future. JB Hunt Transportation (JBHT) is the largest of these, with revenues of over $5.5 billion last year. It has increased revenue and profits every year since 2009 and is on track to do so again this year. The company’s stock, however, has still been dragged down with the broader market since August, as you can see in this chart.

JBHT

When equity and commodity markets fall in unison, it can be a worrying time for investors. History tells us, however, that it is usually a good time to buy, if somewhat selectively. JBHT operates primarily in an economy that is still showing strength, has a history of growth, and is set to benefit from a reduction in their cost of doing business. If you have the inclination and courage to buy in a falling market, this stock should be a part of your plans.

By Martin Tillier of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play