Who Does Cheap Oil Benefit? See This Stock (DG, COST).

There is a common perception that cheap oil will lead to stronger consumer spending, which will then benefit stocks. In most economic situations, this would be logical. The reason this isn’t logical thinking right now is because cheap oil is partially a result of a weakening consumer. What you want to know is this: Which companies and their stocks will actually benefit from cheap oil? Answering that question with absolute certainty is impossible, but we can see if one or more companies have a better chance than others.

Airlines

The logic here is that airline stocks will perform well because fuel costs have plummeted. This trade made sense for a while, but it’s not going to be nearly as pretty going forward. Fuel costs should continue to go down, which is a clear positive and can potentially prevent disaster for airline stocks. On the other hand, as business cut costs, business travel will be reduced. And as investment incomes sour, leisure travelers will no longer be as quick to buy airline tickets. What happens then? At that point airlines must reduce their pricing, which then impacts sales and earnings, followed by their stock prices. (For more, see: Top 3 Transportation Stocks of 2016.)

If you look at JetBlue Airways Corp. (JBLU), Delta Air Lines, Inc. (DAL), Alaska Air Group, Inc. (ALK) and American Airlines Group Inc. (AAL), all four have suffered double-digit stock depreciation over the past three months. This tells you that these stocks will not hold up in an approaching bear market. While airline stocks might hold up a little better than the broader market, they’re still not where you want to be.

Package Delivery

You might be thinking about United Parcel Service, Inc. (UPS) and FedEx Corporation (FDX), but the same concept applies. As the consumer slows, demand for products will decline leading to fewer deliveries and offsetting fuel cost savings. On the results side, UPS and FDX have slid 7.19% and 19.33% over the past three months, respectively. UPS hasn’t done too badly, especially with a 3.06% dividend yield, but that’s still a loss. In addition to the aforementioned concern, you have to consider a potential Amazon.com, Inc. (AMZN) threat.