5 Ways to Profit From Crashing Oil Prices

— -- The decline in oil prices, initially welcomed as a boon to the pocketbooks of American consumers, has prompted concerns about a negative impact on the global economy and ensuing stock market jitters.

Several months ago, the price per barrel was in the $90 range. This month, it has dipped below $50, prompting stock market hiccups.

While the markets ponder the negative implications of declining oil, at the end of the day, it’s nothing more than a textbook example of commodity pricing: The result of a historically large above-ground supply. Inevitably, over the coming months or certainly years, oil prices will rise again, much to the elation or chagrin of opposing investor camps.

When this will happen is anybody’s guess, as is often the case regarding commodity-price forecasting. But in the meantime, cheaper oil is creating opportunities for profit in sectors that are directly and indirectly affected by it. By getting into these industries now, you will probably benefit from increasing share prices propelled by earnings improved directly or indirectly by lower oil prices.

These industries include:

• Car manufacturing. Or, I should say, trucks. Nostalgically low gasoline prices are a boon to General Motors and Ford, big manufacturers of pickup trucks and sport-utility vehicles. This truck-chassis category accounts for about 67 percent of Ford’s total sales and about 60 percent of GM’s. As a result, a developing American consumer inclination to buy bigger because of lower pump prices will increase sales for these two manufacturers more than any other factor, global or domestic. Insofar as lower fuel prices will cause people to buy any type of vehicle sooner than they’d planned, most or all classes of vehicles will benefit.But vehicles with heavy chassis stand to benefit the most. Boosted by a fuel-price-related surge late in 2014, this category accounted for one in three vehicle sales for the year. In the 1990s, it was one out of five. Economic naysayers claim that all auto sales will be dampened by interest rate increases that we’ve been waiting for on the edge of our seats for years now. But this concern is illogical. Even if the Federal Reserve notches up the prime rate, triggering higher rates on loans, this has only a slight effect (in the tens of dollars per month) on car loan payments because these loans run for only 48 to 60 months. Rather, it’s the application of higher interest rates to 20- and 30-year mortgage loans that results in significant differences in monthly payments.
• Delivery stocks. For FedEx, UPS and other delivery companies, fuel prices are critical. These companies have been blessed by increases in online shopping, and with fuel prices lower, this increased volume will translate nicely into higher profit margins, increasing earnings for shareholders and their stocks’ market allure. Trucking companies are also benefiting from lower fuel costs, but to the extent that online shopping means less trucking of goods to bricks-and-mortar retail outlets, they will have less volume. Delivery stocks have the happy combination of rising volume and lower costs.