Oil prices slumped more than 2% on Sep 24, touching the lowest level since the attacks on Saudi Arabia’s key oil production facilities. This has been primarily led by President Trump’s disturbing rhetoric in relation to the trade conflict with China.
Trump accused China of manipulating its currency and stealing intellectual property, in a U.N. speech. He specified that he won’t accept a "bad deal" in trade talks with China. It’s worth pointing out that China is the world’s largest importer of oil and also the second-largest crude user. The United States, in the meanwhile, is the largest consumer of oil.
Such developments are working against the oil market, especially, after oil rallied last week following a crippling attack on Saudi oil installations. The coordinated drone strikes on key Saudi oil facilities have removed nearly 5% of global supplies.
U.S. Secretary of State Mike Pompeo said that the attack was a “state-on-state act of war” by Iran, but the United States is still committed toward finding a diplomatic solution with Iran. U.S. Secretary of Defense Mark Esper added that the United States will send troops to Saudi Arabia but that would be “defensive in nature.” U.S. treasury secretary Steven Mnuchin stated that “the United States will continue its maximum pressure campaign against Iran’s repressive regime, which attempts to achieve its revolutionary agenda through regional aggression while squandering the country's oil proceeds.”
The coordinated drone strikes affected the world’s largest oil procession plant. In fact, Saudi Energy Minister Prince Abdulaziz bin Salman said that almost 5.7 million barrels a day of crude oil and gas have been affected.
Nonetheless, oil prices extended losses after industry data showed unanticipated buildup in U.S. crude stockpiles. The American Petroleum Institute said that U.S. crude inventories rose 1.4 million barrels last week, way more than analysts’ estimate of 200,000-barrel drawdown.
But, the drop in crude oil prices has been a blessing for aviation and refinery companies. Here’s why —
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 are rising after the sharp drop in oil. As fuel costs form a major part of the operating costs for aviation firms, a rise in oil prices eats into profit margins.
Refineries also stand to gain from the drop in crude oil prices. Refineries buy crude oil as their raw materials. So, refineries’ net cash flow declines if crude oil prices rise. Meanwhile, their net cash flow increases when crude oil prices fall.
4 Solid Picks
We have, thus, selected four such stocks from the aforesaid areas that are poised to make the most of the crude oil fall. These stocks also boast a Zacks Rank #1 (Strong Buy) or 2 (Buy).
SkyWest, Inc. SKYW operates a regional airline in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 1.3% in the last 60 days. The company’s expected earnings growth rate for the current year is 16.6% compared with the Transportation - Airline industry’s estimated rise of 8.8%.
Ryanair Holdings plc RYAAY provides scheduled-passenger airline services. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 0.5% in the last 60 days. The company’s expected earnings growth rate for the next year is 32.4% compared with the Transportation - Airline industry’s projected rally of 15.3%.
Copa Holdings, S.A. CPA provides airline passenger and cargo services. The company offers flights to 81 destinations in 33 countries in North, Central, and South America, as well as the Caribbean. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 10.8% in the last 60 days. The company’s expected earnings growth rate for the current year is 21.6% compared with the Transportation - Airline industry’s expected rise of 8.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Global Partners LP GLP engages in the purchasing, selling, gathering, blending, storing, and logistics of transporting gasoline and gasoline blendstocks, distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers, retailers, and commercial customers. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 20.9% in the last 60 days. The company’s expected earnings growth rate for the current quarter is 115.9% compared with the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry’s projected rally of 72.2%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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