How investors might be able to profit from $5 gas
Investors may be able to alleviate some of the pain at the pump by investing in two sectors that stand to gain from rising oil prices.
Gas hit $5 a gallon for the first time Thursday in major cities on the West Coast, and experts see these prices coming to more states across the nation sometime soon.
Oil company stocks have been hot all year as gas prices climbed due to demand outpacing supply. And with disruptions in Russian oil exports likely as the war in Ukraine progresses, US gas prices could continue to soar.
While you may be feeling this at the pump, you can play this trend in two sectors and possibly offset the pain of rising gas prices. Oil is hot already; the other is a bit more speculative.
1. Oil stocks
The national average for a gallon of gas stood at $3.61 as of February, according to data from the US Energy Information Administration. This is up 20 cents from a month before and more than a buck from last year.
In states where gas is priciest, motorists are paying well over $4 per gallon. No state, according to data from AAA, is paying under $3.50 for a gallon of gas.
Against that backdrop, virtually all the top 25 gainers in the S&P 500 this year are in oil, according to data from Finviz.
Here are the top best performers year to date.
Occidental Petroleum (OXY)
Up nearly 67% already this year, this Houston-based oil and gas company is the S&P’s top-performing stock and has already surpassed its total 2021 gains.
The stock bottomed at $9 in March 2020, returning to levels not seen for nearly two decades. But shares of Occidental have rebounded quite nicely over the past two years.
For more information and a five-year chart of the stock’s performance, see our dedicated guide to Occidental Petroleum stock.
Texas-based oil field service company Halliburton has been a winner so far in 2022, with its stock rising nearly 48%, more than double its total 2021 return.
The stock is now trading at levels not seen since 2018 but is still far off from its 2014 all-time high of $74.33.
For more information and a five-year chart of the stock’s performance, see our dedicated guide to Halliburton stock.
APA is the holding company for Apache Corporation, a Texas-based oil and gas company. The stock climbed an impressive 82% in 2021 and is up nearly 41% year to date.
Shares of APA are down roughly 72% from their all-time high set in 2011, but the stock’s been rebounding steadily since March 2020.
For more information and a five-year chart of the stock’s performance, see our dedicated guide to APA stock.
Marathon Oil (MRO)
Marathon Oil closed out 2021 up a staggering 140%, and it’s been continuing its push into 2022. The stock is up 40% so far this year.
The stock cratered to a low of $3.02 in April 2020 but has since rebounded as the world reopened and strong demand for fuel continues to push prices higher. Shares of Marathon Oil are down roughly 43% from their 2014 all-time high $39.94.
For more information and a five-year chart of the stock’s performance, see our dedicated guide to Marathon Oil stock.
After coming off a strong 40% gain in 2021, New York-based Hess has continued to provide investors with solid returns in the first quarter of 2022. The stock is up nearly 38% for the year.
The stock is trading at its highest in five years and is looking to surpass the $104.50 mark next, which is where it topped in 2014.
For more information and a five-year chart of the stock’s performance, see our dedicated guide to Hess stock.
These oil stocks have had an impressive couple of years, they’ll cool off eventually. But in the short term, investors may see continued strength as global tensions compound already-rising oil prices.
2. Electric vehicles
While exciting new electric vehicle (EV) models are leading more people to adopt EVs, historically-high gas prices and the cheaper price of running an EV may encourage more motorists to make the switch sooner than planned.
EV adoption is showing no signs of slowing
US EV sales are expected to total about 700,000 in 2022, according to a February forecast by automotive market research firm AutoPacific. And rising gas prices are playing a role.
“We can’t deny that fuel prices play a role in EV demand,” said AutoPacific President and Chief Analyst Ed Kim in a statement accompanying its forecast. “In fact, 83% of EV intenders say they would choose an EV because ‘charging is cheaper than refueling.’”
Globally, EV sales more than doubled year over year in 2021 to 6.6 million, according to the International Energy Agency (IEA). And sales will likely continue to soar in 2022 as new models flood the market and oil prices continue to soar.
Investors can play legacy automakers and EV startups
Major automakers have been jumping into the EV market, investing billions of dollars into the construction of new battery cell plants and new EV models.
But Tesla (TSLA) remains the most pure play among EV makers. Though it’s been losing market share in recent years, Tesla still has a hold on at least half the total market, according to the IEA.
Beyond Tesla and legacy automakers, we’ve seen an influx of EV startups entering the stock market in the last two years, including Fisker (FSR), Lordstown Motors (RIDE), Rivian (RIVN) and Lucid Motors (LCID).
And more are on the way.
Initial public offerings in the EV market could raise about $100 billion until the end of 2023, according to Bank of America, as reported by Bloomberg.
For investors, EV startups are undoubtedly the most risky, but possibly more rewarding long term if they buy the one that takes off. Short term, though, EV startups are having a tough time getting production going and producing in volume.
So while gas prices keep jumping, investors may be able to alleviate some of the pain at the pump by investing in the two sectors benefiting from rising oil prices.
For more on the energy sector, read our guide to investing in energy stocks.
At the time of publication, Matt Miczulski owned shares of OXY, HAL, TSLA, RIVN and LCID.
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