Recent reports suggest that there’s a big shift underway in the U.S. economy.
Yesterday’s Consumer Price Index (CPI) report indicated a slight uptick in energy prices for U.S. consumers in the month of October. And after yesterday’s American Petroleum Industry (API) report, which stated that crude oil stockpiles have fallen, it looks like higher energy prices could be here to stay. At a first glance, this appears to be good news for the beaten-down energy sector. Does this really mean that it’s time to load up on big oil companies again? That’s the trillion-dollar question that I’ll answer today.
You might think all of yesterday’s information is good news for energy producers like Exxon Mobil (XOM). Higher energy prices mean more revenue, which should translate into a higher stock price, right? Don’t be so sure. With a -38% revenue loss and a -47% earnings loss just in the past quarter, Exxon is still predicting -33% sales growth this quarter as well. A slight uptick in energy prices won’t reverse that trend. Even with rising oil prices, Exxon certainly isn’t a bargain at its current stock price. In an industry where many players trade at single-digit multiples, XOM has an inflated P/E ratio of over 19. To add insult to injury, my Portfolio Grader tool has Exxon graded as a D-rated sell.
With Exxon off the table, you might want to take a look at the other energy stock on the Dow: Chevron (CVX). However, Chevron is in exactly the same boat as Exxon; in fact, it could be sinking even faster. Chevron also saw a -37% loss of quarterly revenue over a year ago, but it also had a massive -63% loss in quarterly earnings. That’s why analysts are predicting a -38% overall sales decline from Chevron this year. That’s right. Chevron is also a D-rated stock in my Portfolio Grader tool.
So what’s a smart investor to do?
Well, truth be told, even with the slight uptick in prices, petroleum is still relatively inexpensive. That means we should be maximizing our profits in the industries benefitting from inexpensive fuel prices, and that means we’re looking for cheap gasoline, cheap diesel, and cheap jet fuel. Then, we simply need a way to capitalize on that lack of overhead. A great way to do that right now is with airlines, and a great airline stock at the moment is Southwest (LUV).
Unlike with the energy industry stocks, Southwest just saw an impressive 77% increase in year-over-year quarterly earnings growth. Tack that onto projected 54% growth this quarter, and you can see why analysts are projecting 75% growth for Southwest this year alone. Now, those are the kinds of numbers I can get behind in an investment. If you’re really curious about where Southwest stock stands right now, though, I urge you to look it up in my Portfolio Grader tool today.
Here’s what I want you to take away from this today. Smart investors look at economic trends and map out their next stock picks accordingly. Smarter investors look at economic trends, industry data and company fundamentals to select new stocks to buy and sell. My goal with this daily blog, and my newsletters, is to guide you into the second category.