Which Stocks Win And Lose As Gas Prices Go Up Again?

Key Takeaways

• Lower gas prices help retailers and airline stocks, but that doesn’t mean it’s the only factor influencing them.
• Oil and gas companies in adjacent sectors can be hurt by lower gas prices, but usually the drop has to be severe. Ironically, they can also be hurt by surging gas prices due to ‘demand destruction.’
• Gas prices affect stocks, but not as dramatically or predictably as you might think — the context around what’s driving gas prices counts.

You may have found yourself breathing a small sigh of relief as the summer gas prices started to come down from all-time highs. The decrease might not have been enough to inspire a cross-country road trip, but every penny you can save at the pump eases your budget in this inflationary environment.

How can lower gas prices impact your portfolio, though? Some companies you’re invested in may have seen drops in their operating expenses. This can increase stock prices, but only if there aren’t other pressing concerns weighing on the company ledger. Then there are those companies that will likely see diminished projected profits when the price of gas goes down, but it’s not always the determining factor in their net profit and long-term stock prices.

Stocks that benefit from lower gas prices

Some industries are disproportionately hurt by high gas prices and can breathe a little sigh of relief when they start falling.

Airlines

Airlines are uniquely reliant on large amounts of expensive jet fuel. When fuel prices go up, a portion of that cost lands on the income statement. And when airlines raise prices to make up the difference, expensive fares could lead many people to skip travel or find an alternative means of transportation.

When fuel prices were higher earlier in 2022, industry experts predicted lower quarterly profits for exactly this reason. They weren’t wrong. The NYSE Arca Airline Index (XAL) – an index tracking 18 different airlines – fell this year. The year began with an index value of $83.73 on Jan. 1, 2022, and dipped to a low point, $53.41, on Jun. 16, 2022.

When fuel prices began declining in the latter part of the summer, the index started to creep up again, with prices as of Sept. 9, 2022, sitting at $61.79.

Fuel prices impact airlines, but it’s not the only thing that affects their stock prices. A shortage of pilots, persistent flight delays, and additional staff shortages due to unmitigated COVID-19 rates all helped contribute to the tumble in the XAL during the first half of 2022. Lower fuel prices are a welcome reprieve but do not resolve all investor concerns.

Retailers

Retailers depend heavily on logistical services to ship their products to stores across the country. For example, Target’s Q1 profits were so poor that the stock abruptly dropped from $215.28 on May 17, 2022, down to $161.61 on May 18, when profits were reported, and the company shared new inventory challenges.

In June, Target told shareholders that gas prices were a major contributing factor to lower profits and that the company would pass that expense to consumers via price hikes. When gas prices go down, the shipping and logistical expenses get smaller, which can help retailers’ earnings, potentially boosting investor confidence and share prices.

As for Target, it hasn’t quite recovered from the huge dip in May. But after a tumultuous summer, it appears to be headed for an equally tumultuous fall with share prices ranging from $180.19 to $158.69, now sitting at $165.01 at closing on September 15, 2022.

Stocks that Lose with Lower Gas Prices

Other companies benefit from higher gas prices and suffer from lower ones – but only to a certain extent. Extremes, one way or the other, can be equally damaging.

Oil & Gas Companies

Oil and gas companies are interesting because not only can they be hurt by dropping gas prices, but they can also be hurt by a phenomenon known as demand destruction.

Consumers cut out certain commodities when they get wildly unaffordable – like gasoline. They travel less, opt for public transit more, and try consolidating errands when filling up the tank costs $100+. That means when gas prices get high enough, the demand decreases and pushes pump prices lower.

This happened to Haliburton in June 2022, when its stock prices dropped from $42.97 to $30.04 over two weeks. It hasn’t recovered. As of September 15, 2022, Haliburton is sitting at $29.40.

That doesn’t mean the company is a bad investment over the long term or that the company’s financials are suffering. Haliburton had a strong Q2 despite the stock market dip, and its executives appear confident.

“Our strong second quarter performance demonstrates that our strategy is working well, and Halliburton’s strategic priorities are driving value,” CEO Jeff Miller said in a press release. “Total company revenue grew 18% sequentially, as activity increased simultaneously in North America and international markets, and adjusted operating income grew 35% with strong margin performance in both divisions.”

Payment Processing Companies

Certain payment processing companies, like Fleetcor Technologies and Wex, benefit when gas prices are high and suffer relative losses when they drop. As one arm of these companies’ businesses, they issue payment cards to trucking fleets for expenses like lodging, tolls, and – you guessed it – fuel.

According to a 2021 report from Wex, every time gas goes up $0.01, its revenue follows to the tune of $1.5 million. However, as gas and oil companies can be hurt by demand destruction, so can companies like Fleetcor Technologies and Wex. If corporate fleets start cutting back on driving hours, their usage of payment cards slows.

But that doesn’t change the fact that falling gas prices also affect these companies’ revenue. In theory, this could impact their stock prices, but both companies have diversified revenue streams. Gas cards aren’t their only way to bring in money.

Both companies have had a great year with strong Q2 numbers, even if stock prices are below their 2021 peak. At Wex, revenue was $598 million, up 30% year-over-year. Fleetcor Technology’s Q2 2022 numbers reveal $861.3 million in revenue, up 29% from Q2 2021.

How much of an impact do gas prices have on the stock market?

Surges and declines in fuel costs rarely happen in isolation. Right now, external factors like Russia’s invasion of Ukraine, staffing shortages due to COVID-19 transmission, and the skirting of demand destruction all suggest that the slight decrease we’ve seen in gas prices over the past month has had a minimal impact on stock prices overall. We’ll see how this develops as prices continue to creep up again.

Historically, fuel prices are also not necessarily tied to overall stock market performance. They can be a contributing factor, but they must be considered as part of a much bigger economic picture.

For example, when gas prices rose during the 2008 recession, the S&P 500 was simultaneously dipping 49%. But during the Iran-Iraq War, the S&P 500 gained 18% despite oil prices nearly doubling. Context matters.

At the tail end of a global pandemic and squarely in the midst of geopolitical conflict, that’s never been more true.

How do I protect my portfolio from volatile gas prices?

Ideally, your portfolio should be well-diversified. You shouldn’t be overly invested in energy stocks, but they should make up a portion of your portfolio.

That way, you’ll capture the highs of the oil and gas industries and won’t suffer as badly through the lows. You may even be invested in renewable energy sources – a market that’s likely to grow if oil and gas prices continue to be expensive and volatile commodities.

You could build a well-rounded portfolio yourself. You can also use AI-powered Investment Kits from Q.ai and activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in.

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