Are There Winners from the Selloff in Oil?


Oil just had its biggest drop in at least four years, and winners may be emerging.

Airlines are one of the best-performing groups recently, according to TradeStation’s uber-useful RadarScreen® app. They’ve risen 3 percent in the last week and 6 percent in the last month, while the broader S&P 500 is down over both those time frames.

RadarScreen with Dow Jones indexes showing airlines among the top performing industries in the last week and last month. (As of Tuesday’s close.)

Cheaper oil has typically provided a boost to airlines because fuel is their biggest cost. This year could have other benefits in the strong economy and record-setting travel volumes. Consider some of these developments:

  • In August, trade group Airlines for America said in August Labor Day weekend was the busiest ever for travel.
  • In early October, the “big three” carriers — United Continental (UAL), American Airlines (AAL) and Delta Air Lines (DAL) — all announced better-than-expected results and/or strong guidance. (By the way, RadarScreen shows all of these averaging well over 10,000 options contracts a day, which can make it easier to position with calls or puts.)
  • On Monday, Goldman Sachs initiated the entire industry with an Attractive outlook, looking for margins to improve for the first time since 2015.
  • This morning, USA Today reported that industry watchers expect this coming Thanksgiving to be the busiest ever, with fliers rising to 30.6 million from 29 million in 2018.
  • That story comes just one day after the same newspaper highlighted how several carriers have boosted luggage fees. That means the prices they charge are rising as their fuel costs decline.

Aside from airlines, investors may view two other groups as beneficiaries of cheaper oil: retailers and automakers.

Retailers are just now entering the heart of their corporate-earnings season, with initial indications mostly positive. Advance Auto Parts (AAP), for instance, ripped to a new three-year high yesterday on strong results. Macy’s (M) beat estimates this morning and raised guidance.

Wal-Mart Stores (WMT) and Nordstrom (JWN) report tomorrow. Keep reading Market Insights for more in coming days.

Automakers like General Motors (GM) and Ford Motor (F) have also pushed higher recently on signs of a turnaround. Remember, both of these companies still make a ton of money from gas-guzzling SUVs and light trucks.

In conclusion, oil’s been through a major correction. But now could be the time that investors start looking for companies that will profit from the trend.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.