3 Stocks That Stand to Benefit From the Plunge in Oil Prices
With oil prices near seven-year lows, many large oil producers and associated businesses have felt pain equivalent to a well-oiled chainsaw doing a tango on the intestines. Recent massacres include a 2015 full-year loss of $6.5 billion for BP, a 53% drop in earnings per share for Royal Dutch Shell,and a 35% drop in revenue for ExxonMobil.
This carnage, though, is creating some major upside for other companies, those outside the business of black gold, that stand to benefit from a consumer wallet that's fattening like a turkey in October. Here are three of them.
Starbucks: The Great Recession was bad for the coffee retailer, as consumers suddenly became hyper cost conscious and decided to skip the $3 lattes, opting instead for cheaper alternatives at McDonald's and Dunkin' Donuts. But now, the opposite is true, as consumers are making room for luxury coffee. Starbucks recently reported a 12% increase in net revenue to $5.4 billion, with global traffic up 4% and adjusted earnings growth of 15% to $0.46 per share for its fiscal 2016 first quarter. The company also reported a 60 basis point increase in its operating margin to 19.7% and a 5% increase in its average ticket sale.
Consumers are finding that as they reach down and discover extra cash in their pockets, they're more comfortable splurging on a $5 Smoked Butterscotch Latte and a $4 La Boulange sandwich. And they're comfortable doing it on a more frequent basis. This leads to higher revenue and margins for the coffee retailer named after the first mate of the Pequod.
CNN Money estimates that U.S. households will realize an average gas savings of about $320 this year, which equates to about 160 tall Pike Place coffees from Starbucks.
The Hershey Company: Approximately 24% of Hershey sales come from convenience stores,and most convenience stores come outfitted with a feature that could prove beneficial for the maker of milk chocolate bars: gas pumps. As gas prices drop, consumers tend to make more trips to convenience stores and subsequently, visit the inside of those stores more often. More trips result in more hands snatching up Hershey bars.
The article 3 Stocks That Stand to Benefit From the Plunge in Oil Prices originally appeared on Fool.com.
Adam Brownlee has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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