How Can You Profit From Falling Oil Prices

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Has the price of oil hit a bottom? It is time to put some money into the oil sector? Could this be a buying opportunity? I believe that the answers are No! No! and No! It is the holiday season which means many investors are away so the trading volume in the markets are lower than normal which allows speculators to move market prices. It takes time to confirm that the oil price has made a bottom. Read my post on “Don’t  catch a falling knife & dead cat bounce”

You can still profit from falling oil prices without buying oil stocks. Lower fuel prices have already benefit airlines, cruise lines, trucking companies and delivery service companies.  The chart below compares the I-Shares transportation index YIT to the S&P 500 index SPY.

 

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Why try to pick a bottom in the oil sector? The genius of investing is recognizing the direction of a trend – not catching highs and lows . A common Wall Street phrase is “the trend is your friend” There are lots of transportation stocks to choose from. Some have preformed better than others, with some good research, you should be able to find some winners.

Lower fuel costs will also benefit consumers. The weekly saving is small so consumers will in most cases spend on small pleasures. Eating out,  going to the movies, ordering take out…. etc. If you are a stock picker than companies like Starbucks, McDonald’s, Walt Disney, Wal-Mart, Walgreen, Comcast, Dollar General could be worth looking into.

Another option is to buy a consumer discretionary  ETF that contains many of the stocks mentioned above. Here are two that I have found that look interesting. I-Shares IYC and Vanguard  VCR

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It is difficult to predict how consumers will spend that little extra cash in their wallets. However, a drop in fuel prices is like getting a tax cut and it takes time for the effects to ripple through the economies of the world. Remember that consumer spending accounts for 70% of economic growth. Are you going to save, spend or invest those extra dollars?

Disclaimer: Make sure to do your own research before investing or consult with a financial advisor. Plus for purposes of full disclosure, I personally own shares in Starbucks and Walt Disney in my investment accounts.

 

 

 

 

 

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