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5 of the Biggest Winners From Oil's Descend to a 21-Year Low

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Tirthankar Chakraborty
·10 min read
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Global storage deficiency and declining demand for crude since the coronavirus outburst have pushed oil prices down to levels not seen in more than two decades.

 

Nevertheless, the drop is a blessing for certain companies as well. Thus, focusing on such stocks at the moment isn’t a bad proposition.

 

Oil Slips to 21-Year Low

 

The U.S. benchmark, West Texas Intermediate, plummeted as much as 21% to $14.47 per barrel on Apr 19. It later traded around the $15 range, for the first time in 21 years.

 

Comparatively, Brent crude, the global oil benchmark slipped 4.2% to $26.91 per barrel.

 

Key Factor Behind the Drop

 

Oil prices have been under tremendous pressure as initiatives like lockdowns to counter the spread of the deadly coronavirus worldwide hit fuel demand, leaving ample of supplies that countries are finding hard to store. In fact, the Department of Energy is now considering paying domestic oil producers for storing crude in the ground.

 

Meanwhile, the OPEC and its allies have agreed upon a historic deal to cut output, but that has failed to check the drop in oil prices. Group of 20 nations along with OPEC and its allies held several conferences to finally reach an agreement to tackle the damaging impact of the pandemic on oil.

 

OPEC+ has unanimously decided to cut production by 9.7 million barrels a day, slightly below the initial proposal of 10 million. In fact, like central banks taper off bond buying, OPEC will trim the size of the cuts over time. After June till the end of the year, OPEC will be trimming production to 7.6 million barrels a day and then to 5.6 million next year until April of 2022 (read more: Winners & Losers From the Historic OPEC+ Deal to Cut Output).

 

Meanwhile, Vandana Hari, founder of Vanda Insights, summed up by saying that “the current prices show that the OPEC+ cuts proved to be a blip, with oil prices at the mercy of the virus once again, and that until we approach a lifting of the lockdowns in the U.S., oil may drift lower or remain range bound around current levels.”

 

Aviation, Refiners Poised to Gain

 

Aviation stocks traditionally have an inverse relationship with the movement of oil prices. So, it isn’t surprising that shares of aviation firms will rise after the sharp drop in crude oil prices. After all, fuel costs are major part of the operating costs for aviation firms, thus, rise in oil prices will eat into profit margins.

 

By the way, some may say that the airline stocks have been pretty battered so far this year in the wake of the coronavirus pandemic. Demand for air travel has waned substantially, impacting airlines’ bottom lines to a massive extent. But in a positive move, the U.S. Treasury Department and major U.S. airlines have reached an agreement on principle aimed at curtailing layoffs, with major airlines agreeing to a $25-billion federal aid.

 

Given this bullishness, an aviation stock to win big is passenger airline Southwest Airlines Co. LUV. Notably, it is now the largest domestic air carrier (measured in terms of the number of domestic originating passengers boarded) in the United States. The Zacks Rank #3 (Hold) company’s expected earnings growth rate for the next year is a startling 22,000%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Refineries also stand to gain from the decline in crude oil prices. As refineries buy crude oil as their raw material, their net cash flow increases when crude oil prices fall.

 

Thus, some of the prominent refiners to keep an eye on are Magellan Petroleum Corporation TELL, Murphy USA Inc. MUSA and Par Pacific Holdings, Inc. PARR. 

 

Magellan Petroleum currently has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current quarter is 31.6%. Its projected earnings growth rate for the next five years is 31.1%. Similarly, Murphy USA has a Zacks Rank #2, and its expected earnings growth rate for the current year as well as next five years is 22.6% and 7%, respectively. Separately, Par Pacific has a Zacks Rank #3, and its projected earnings growth rate for the current quarter and year is 35.6% and 5%, respectively. 

 

Oil Price Drop a Boon for Emerging Markets

 

Steady drop in oil prices benefits importers like Turkey, South Africa and India. Cheaper black gold will boost their balance of payments and support GDP growth. 

 

Capital Economics, a leading independent macroeconomic research firm added that with every $10-per-barrel drop in oil, oil importing emerging economies’ income rise by 0.5-0.7% of GDP.

 

This certainly calls for investing in fundamentally-sound companies from the aforesaid emerging economies. One of the best ranked companies you may consider is Azure Power Global Limited AZRE, based in New Delhi, India. 

 

This Zacks Rank #2 company produces and develops solar energy. Its expected earnings growth rate for the next quarter is a whopping 200% compared with the Solar industry’s estimated decline of 44.4%.

 

Breakout Biotech Stocks with Triple-Digit Profit Potential

 

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

 

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

 

See these 7 breakthrough stocks now>>

Global storage deficiency and declining demand for crude since the coronavirus outburst have pushed oil prices down to levels not seen in more than two decades.

Nevertheless, the drop is a blessing for certain companies as well. Thus, focusing on such stocks at the moment isn’t a bad proposition.

Oil Slips to 21-Year Low

The U.S. benchmark, West Texas Intermediate, plummeted as much as 21% to $14.47 per barrel on Apr 19. It later traded around the $15 range, for the first time in 21 years.

Comparatively, Brent crude, the global oil benchmark slipped 4.2% to $26.91 per barrel.

Key Factor Behind the Drop

Oil prices have been under tremendous pressure as initiatives like lockdowns to counter the spread of the deadly coronavirus worldwide hit fuel demand, leaving ample of supplies that countries are finding hard to store. In fact, the Department of Energy is now considering paying domestic oil producers for storing crude in the ground.

Meanwhile, the OPEC and its allies have agreed upon a historic deal to cut output, but that has failed to check the drop in oil prices. Group of 20 nations along with OPEC and its allies held several conferences to finally reach an agreement to tackle the damaging impact of the pandemic on oil.

OPEC+ has unanimously decided to cut production by 9.7 million barrels a day, slightly below the initial proposal of 10 million. In fact, like central banks taper off bond buying, OPEC will trim the size of the cuts over time. After June till the end of the year, OPEC will be trimming production to 7.6 million barrels a day and then to 5.6 million next year until April of 2022 (read more: Winners & Losers From the Historic OPEC+ Deal to Cut Output).

Meanwhile, Vandana Hari, founder of Vanda Insights, summed up by saying that “the current prices show that the OPEC+ cuts proved to be a blip, with oil prices at the mercy of the virus once again, and that until we approach a lifting of the lockdowns in the U.S., oil may drift lower or remain range bound around current levels.”

Aviation, Refiners Poised to Gain

Aviation stocks traditionally have an inverse relationship with the movement of oil prices. So, it isn’t surprising that shares of aviation firms will rise after the sharp drop in crude oil prices. After all, fuel costs are major part of the operating costs for aviation firms, thus, rise in oil prices will eat into profit margins.

By the way, some may say that the airline stocks have been pretty battered so far this year in the wake of the coronavirus pandemic. Demand for air travel has waned substantially, impacting airlines’ bottom lines to a massive extent. But in a positive move, the U.S. Treasury Department and major U.S. airlines have reached an agreement on principle aimed at curtailing layoffs, with major airlines agreeing to a $25-billion federal aid.

Given this bullishness, an aviation stock to win big is passenger airline Southwest Airlines Co. (LUV). Notably, it is now the largest domestic air carrier (measured in terms of the number of domestic originating passengers boarded) in the United States. The Zacks Rank #3 (Hold) company’s expected earnings growth rate for the next year is a startling 22,000%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Refineries also stand to gain from the decline in crude oil prices. As refineries buy crude oil as their raw material, their net cash flow increases when crude oil prices fall.

Thus, some of the prominent refiners to keep an eye on are Magellan Petroleum Corporation (TELL), Murphy USA Inc. (MUSA) and Par Pacific Holdings, Inc. (PARR). 

Magellan Petroleum currently has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current quarter is 31.6%. Its projected earnings growth rate for the next five years is 31.1%. Similarly, Murphy USA has a Zacks Rank #2, and its expected earnings growth rate for the current year as well as next five years is 22.6% and 7%, respectively. Separately, Par Pacific has a Zacks Rank #3, and its projected earnings growth rate for the current quarter and year is 35.6% and 5%, respectively. 

Oil Price Drop a Boon for Emerging Markets

Steady drop in oil prices benefits importers like Turkey, South Africa and India. Cheaper black gold will boost their balance of payments and support GDP growth. 

Capital Economics, a leading independent macroeconomic research firm added that with every $10-per-barrel drop in oil, oil importing emerging economies’ income rise by 0.5-0.7% of GDP.

This certainly calls for investing in fundamentally-sound companies from the aforesaid emerging economies. One of the best ranked companies you may consider is Azure Power Global Limited (AZRE), based in New Delhi, India. 

This Zacks Rank #2 company produces and develops solar energy. Its expected earnings growth rate for the next quarter is a whopping 200% compared with the Solar industry’s estimated decline of 44.4%.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>> 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
Par Pacific Holdings, Inc. (PARR) : Free Stock Analysis Report
 
Azure Power Global Ltd. (AZRE) : Free Stock Analysis Report
 
Magellan Petroleum Corporation (TELL) : Free Stock Analysis Report
 
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