Top consumer stocks for cheaper oil
Posted
Aug 13 2008, 02:47 PM
by
Anthony Mirhaydari
Rating:
Oil prices are now well below their peak of a few months ago, which means gas prices may finally be poised for a decline.
Although the fundamental issues plaguing our economy remain, cheaper gas will surely help consumer stocks pummeled by the "consumer is dead" investing mindset.
So where should we fish for deep-value plays? To help us in the search, a team of economists and equity analysts at Citigroup looked at which sub-sectors had the greatest statistical relationship to crude oil prices.
For you math buffs out there, they focused on the coefficient of determination for each sector. Basically, a larger precentage represents a stronger and more meaningful relationship between oil prices and share prices. Bigger is better here as we look for stocks that should rebound on cheaper oil and gas.
Leisure and Recreation: Shares of recreational vehicle manufacturers like Winnebago and Thor Industries topped the list: Nearly 90% of the movement in share prices could be explained by crude oil. The high percentage makes sense. Since fuel makes up a significant portion of the total cost of ownership for these wheeled behemoths -- especially the profitable Class A motorhomes -- many retirees on fixed incomes have been priced out of the market. Progress on this front, as well as new, more fuel efficient RVs and incentives, should get shares rolling again.
If thundering down the freeway in cosseting leather captain's chairs isn’t your idea of a good time, then maybe you can relate to the turnarounds in store for the cruise lines and hotels. Cruise ship operators like Carnival and Royal Caribbean are looking forward to reduced operating expenditures and increased bookings as vacationers leave the "staycation" behind. Historically, 71% of the variation in share prices could be explained by oil.
The same goes for lodging names like Marriott International and the Gaylord Entertainment Company, where crude oil explains 73% of share price volatility. One caveat is that a large percentage of revenue at these large hotel chains comes from business travelers, whose visit frequency is tied more to the health of the overall economy.
Specialty Retailers: With crude oil statistically explaining 65% of the sector's movement, apparel names like Ann Taylor, American Eagle Outfitters, Coach, and Gap Inc. all look ready to rally as cash is freed for wardrobe revitalizations. This is especially true for the nation's teenagers, who spend a large percentage of their part-time income on gas and are readying for the start of another school year.
This is bearish news for discounters like Ross Stores and T.J. Maxx, whose shareholders were enriched by the trade down trend among consumers.
Entertainment: Companies like Netflix, GameStop, Sirius, and Blockbuster should be big receivers of redirected gas money as people indulge in the affordable pleasures of life. Nearly 50% of the sector's performance can be explained by crude. GameStop looks especially strong heading into the holiday season, as the current video game cycle hits its stride in terms of new titles and console affordability.
(Disclosure: I don’t own shares in any of the companies mentioned)
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