Why Crude Oil Price Drop Makes McDonald's, Netflix and Dollar General Buys
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Oil futures are finally coming down instead of going up. The International Energy Agency said that the global oil supply rose 600,000 barrels per day in April even with the tightening of Iran's exports by sanctions! Yet on such wonderful news, the market is going lower with the price of crude.
My opinion is that nothing is better for the global economy than for oil prices to come down. For every $10 drop in crude we increase our GDP by about .25 percent. The S&P consumer discretionary sector continues to drop, yet this is the sector that has the most to gain from lower crude prices. Gas prices are slowly dropping and if the futures market for gasoline continues to drop or even remains the same, we could easily see gas at $3.25 a gallon for the national average in June. So for every 10 gallons of gas we will have $7.50 more in our pocket as compared to $4.00 per gallon gas.
Doesn't sound like much, but it is going to be spent on something. Even if you took a conservative estimate of 100 million U.S. drivers it comes out to three-quarters of a billion dollars a week. It is better than a government stimulus because it adds nothing to the national debt. It is better than the Federal Reserve embarking on QE3 because it will not cause inflation. Here are three stocks that could receive a boost.
McDonald's (NYSE: MCD) saw sales rise 3.3% in April in the U.S., under the 5% analysts predicted, causing about a 3.5% drop in share price. This company has been growing for so long that this will be a minor blip in its fast food dominance. An Investors.com article said about McDonald's, “The company has been spotlighting its upscale menu items, like McNugget boxes and McCafe gourmet coffees. Those items have proved popular with consumers, but they may be backing away from those items because of ongoing economic concerns.” What better place for some of that extra pocket change than McDonald's and their upscale menu?
How about Netflix (NASDAQ: NFLX), which is down 68% in the past year. Netflix has a lot of competition and it is losing money. According to the NY Times, its increased investments in new markets is the cause for its modest losses. Its transition from delivering movies by mail to streaming movies and shows via the internet makes it a very interesting stock to me. With that extra money in one's pocket it could very well end up purchasing online streaming from Netflix like 21.7 million other U.S. subscribers.
Where will a dollar go a long way? Maybe Dollar General (NYSE: DG) with its almost 10,000 stores in 39 states. In its last fiscal year it opened 625 new stores and remodeled 575 stores, according to Reuters. Its last quarter it earned .85 cents a share and has ambitious plans to open another 625 stores in 2012. The Nashville Business Journal stated last week, “that those on fixed incomes are still its core customers, the fast-growing retailer is making a play for what it calls trade-down shoppers.” It hopes to keep these $75,000 a year income people coming back by filling its shelves with a bigger selection of brand names. Some of that money saved on gas could find its way into their cash registers.
These companies will not be the sole beneficiaries from added money in peoples pockets. I choose these three stocks because they are stable and are still a good purchase even if we have a jump back in crude prices. An additional $7 or $8 dollars in ones pocket could easily be spent at any of the three companies. But if gas prices go to where I think they will or even lower, McDonald's, Netflix and Dollar General could benefit from the extra household discretionary spending.
mwm102 has no positions in the stocks mentioned above. The Motley Fool owns shares of Netflix. Motley Fool newsletter services recommend McDonald's and Netflix. 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.If you have questions about this post or the Fool’s blog network, click here for information.