Which Stocks Win And Lose As Gas Prices Go Up Again?

key takeaways

  • Lower gas prices help retailers and airline stocks, but that doesn’t mean it’s the only factor influencing them.
  • Oil and gas companies in adjacent sectors may be hurt by lower gas prices, but the drop usually has to be severe. Ironically, they may also be affected by rising gasoline prices due to “demand destruction.”
  • Gas prices affect stocks, but not as dramatically or predictably as you might think — context around what’s driving gas prices counts.

You may have breathed a small sigh of relief when summer gas prices began to slide back from record highs. The decline may not have been enough to inspire a cross-country road trip, but every penny you can save at the pump eases your budget in this inflationary environment.

However, how can lower gas prices affect your wallet? Some companies you’ve invested in may have seen drops in their operating expenses. This can boost share prices, but only if there are no other pressing concerns weighing on the company’s ledger. Then there are those companies that are likely to see projected earnings decline when the price of gasoline declines, but it’s not always the driving factor in their net profit and long-term stock prices.

Stocks benefiting from lower gas prices

Some industries are disproportionately affected by high gas prices and can breathe a sigh of relief when they start to fall.

airlines

Airlines rely solely on large amounts of expensive jet fuel. When fuel prices rise, a portion of that cost falls on the income statement. And when airlines raise prices to make up the difference, expensive fares can keep many people from traveling or looking for alternative transportation.

When fuel prices were higher in early 2022, industry insiders predicted lower quarterly earnings for precisely this reason. They were not wrong. The NYSE Arca Airline Index (XAL), an index that tracks 18 different airlines, fell this year. The year began with an index value of $83.73 on January 1, 2022, and fell to a low point, $53.41, on June 16, 2022.

As fuel prices began to decline in the latter part of the summer, the index began to rise again, with prices as of September 9, 2022, at $61.79.

Fuel prices impact airlines, but it’s not the only thing that affects their stock prices. Pilot shortages, persistent flight delays, and additional staffing shortages due to unmitigated COVID-19 rates helped contribute to the XAL slump during the first half of 2022. Lower fuel prices are a welcome relief, but they don’t solve all investor concerns.

retailers

Retailers rely heavily on logistics services to ship their products to stores across the country. For example, Target’s first-quarter earnings were so low that the stock fell sharply from $215.28 on May 17, 2022, to $161.61 on May 18, when earnings were reported and the company shared new inventory challenges. .

In June, Target told shareholders that gasoline prices were a major factor contributing to lower profits and that the company would pass that cost on to consumers through price increases. When gas prices drop, shipping and logistics costs are reduced, which can help retailer profits, potentially boosting investor confidence and stock prices.

As for Target, it hasn’t fully recovered from the big drop in May. But after a tumultuous summer, it appears headed for an equally tumultuous decline with share prices hovering between $180.19 and $158.69, now sitting at $165.01 as of the close on September 15, 2022.

Stocks Losing on Lower Gas Prices

Other companies benefit from higher gas prices and suffer from lower ones, but only up to a point. Extremes, in one way or another, can be just as damaging.

Oil and Gas Companies

Oil and gas companies are interesting because not only can they be hurt by falling gas prices, but they can also be hurt by a phenomenon known as demand destruction.

Consumers phase out certain staples when they become wildly unaffordable, like gasoline. They travel less, take public transportation more, and try to consolidate errands when filling up the tank costs more than $100. That means that when gas prices rise high enough, demand declines, pushing pump prices down.

This happened to Haliburton in June 2022, when its share prices fell from $42.97 to $30.04 in two weeks. It has not recovered. As of September 15, 2022, the Haliburton is priced at $29.40.

That doesn’t mean the company is a bad long-term investment or that the company’s finances are suffering. Haliburton had a strong second quarter despite the stock market slump, and executives at Haliburton seem confident.

“Our strong performance in the second quarter demonstrates that our strategy is working well and that Halliburton’s strategic priorities are driving value,” CEO Jeff Miller said in a press release. “Total company revenue grew 18% sequentially, as activity increased simultaneously in North America and international markets, and adjusted operating income grew 35% on strong margin performance in both divisions.”

Payment processing companies

Certain payment processing companies, such as Fleetcor Technologies and Wex, benefit when gas prices are high and suffer relative losses when they fall. As part of these companies’ business, they issue payment cards to trucking fleets for expenses like lodging, tolls, and, you guessed it, fuel.

According to a 2021 report from Wex, every time gasoline goes up $0.01, its revenue follows to the tune of $1.5 million. However, just as oil and gas companies can be hurt by demand destruction, so can companies like Fleetcor Technologies and Wex. If corporate fleets begin to reduce driving hours, payment card usage slows.

But that does not change the fact that the drop in gas prices also affects the income of these companies. In theory, this could affect their share prices, but both companies have diversified sources of income. Gas cards aren’t your only way to earn money.

Both companies have had a great year with strong numbers in the second quarter, even if stock prices are below their 2021 peak. At Wex, revenue was $598 million, up 30% year over year. . Fleetcor Technology’s Q2 2022 figures reveal $861.3 million in revenue, up 29% from Q2 2021.

What impact do gasoline prices have on the stock market?

Increases and decreases in fuel costs rarely occur in isolation. Right now, external factors like the Russian invasion of Ukraine, staffing shortages due to COVID-19 transmission, and the brink of demand destruction suggest that the slight decline we’ve seen in gasoline prices over the last month has had a minimal impact on stocks. prices in general. We will see how this plays out as prices continue to rise again.

Historically, fuel prices are also not necessarily tied to the overall performance of the stock market. They may be a contributing factor, but they must be seen as part of a much larger economic picture.

For example, when gasoline prices rose during the 2008 recession, the S&P 500 simultaneously fell 49%. But during the Iran-Iraq War, the S&P 500 gained 18% despite oil prices nearly doubling. Context matters.

At the end of a global pandemic and squarely in the midst of geopolitical conflict, that has never been more true.

How do I protect my portfolio from gas price volatility?

Ideally, your portfolio should be well diversified. You shouldn’t invest too much in energy stocks, but they should make up a part of your portfolio.

That way, you’ll catch the highs of the oil and gas industries and won’t suffer as much during the lows. It can even invest in renewable energy sources, a market that is likely to grow if oil and gas prices continue to be expensive and volatile commodities.

You could create an entire portfolio yourself. You can also use AI technology investment kits of Q.ai and activate portfolio protection at any time to protect your profits and reduce your losses, no matter what industry you invest in.

Download Q.ai today to access investment strategies powered by AI. When you deposit $100, we’ll add an additional $100 to your account.

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