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Credit Suisse's Top Oil Plays Outside The Energy Sector

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In a new report, Credit Suisse analyst Andrew Garthwaite takes a fresh look at the oil industry. Despite falling oil prices, the firm sees increasing speculative interest in oil. Although valuations are not as appealing as many may think, Garthwaite sees several possible ways to play the current oil environment.

Looking Outside The Oil Space

One way to go about profiting from low oil prices is to look outside the energy sector for companies that benefit from low oil prices. Credit Suisse ran a screen to identify Outperform-rated companies that profit from low oil prices. The list includes U.S.-listed names such as FedEx Corporation (NYSE: FDX), Ryanair Holdings Plc (NASDAQ: RYAAY), Dollar General Corp. (NYSE: DG), Wal-Mart Stores, Inc. (NYSE: WMT) and Carnival Corp (NYSE: CCL). Garthwaite notes that Wal-Mart and FedEx have actually underperformed the market since last year’s peak oil prices.

International Plays

There are several international economies that are closely tied to the price of oil as well. According to the report, a $10/bbl reduction in oil prices shaves about 1 percent off of Russia’s GDP. European stocks with Russian exposure also demonstrate extremely high correlation to crude prices.

Mexico and Brazil generate 17 percent and 10 percent of fiscal revenues from commodities, respectively, and India has historically outperformed Brazil during times of lower oil prices. Oil also accounts for 62 percent of exports and 18 percent of the GDP of Norway.

Outlook

The report concludes with a discussion of what investors can expect when the price of oil finally starts to improve. “When the price of oil falls, inflation expectations fall, bond yields fall and thus cyclicals tend to underperform,” Garthwaite explained.

He believes that the eventual turn in oil prices should coincide with a market rotation from defensives to cyclicals.

Latest Ratings for FDX

DateFirmActionFromTo
Nov 2017BarclaysMaintainsOverweightOverweight
Nov 2017Goldman SachsInitiates Coverage OnBuy
Oct 2017JP MorganMaintainsOverweight

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Posted-In: Andrew Garthwaite Credit SuisseAnalyst Color Commodities Markets Analyst Ratings

 

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