Gas prices fell last year and are forecast to fall even more in 2014. That’s great news for, well, just about everyone. It puts more cash in consumers’ wallets, a good chunk of which gets spent at the nation’s retailers. It also helps any company that buys a lot of gas.
AAA and GasBuddy.com project gas prices to be cheaper by about 10 cents per gallon in 2014. Last year, the average price of a gallon of regular gas was $3.49, down from $3.60 in 2012 and lower than the $3.51 seen in 2011, according to AAA.
As much as lower gas prices are a boon for consumers and businesses with high fuel costs, the drop in gas prices is all relative. For most of the last decade, the average price of a gallon of regular gas was well below $3.
Still, there’s no question lower gas prices are good for the economy. Consumers are able to spend the savings elsewhere, while companies catch a break on the cost side of things, which helps profitability.
With that, here are three stocks that will benefit from the continuing slide in gas prices:
Gas Price Break: Walmart (WMT)
Walmart’s (WMT) low prices attract plenty of shoppers whose budgets are about as tight as can be. That’s why rising gas prices always hurt Walmart’s sales. Every penny put in the tank is a penny less available for spending at the world’s largest retailer.
There’s also the case that a significant number of Walmart’s traffic comes from folks who live pretty far away. Imagine that your nearest Walmart is a 30-minute drive. That comes to an hour round-trip, which eats up a lot of gas and limits the number of trips customers take to their local Walmarts.
Indeed, a couple of years ago, Walmart said that one in five Walmart moms list gasoline as a top expense behind housing and car payments. Lower gas prices will help boost Walmart’s same-store sales, total revenue and, ultimately, the bottom line. That’s always good for the share price.
Gas Price Break: AutoZone (AZO)
AutoZone (AZO) — the nation’s largest auto-parts retailer — should get a second wind from lower gas prices, because cheaper gas means people drive more and take longer trips. The number of vehicle miles driven picked up in late 2013. That trend should only accelerate as the economy improves and the unemployment rate comes down.
True, AutoZone must get used to the fact that new car sales are finally bouncing back. Over the last few years, the average age of cars on the road hit record highs, as people were reluctant to shell out for new vehicles.
But there are still plenty of older cars on the road, and they’ll need more frequent servicing to make more and longer trips, especially ahead of the summer driving season. That influx — combined with lower gas prices — should give AutoZone stock a nice shot in the arm.
Gas Price Break: United Parcel Service (UPS)
True, UPS (UPS) trucks mostly use diesel fuel, but diesel and gas prices move together directionally. Diesel’s prices are forecast to follow gas prices lower, and that will save the package-delivery giant a lot money.
UPS operates a fleet of nearly 100,000 vehicles. That makes fuel one of its single biggest costs. It’s also why UPS is looking to save 24 million gallons of fuel annually by purchasing 700 natural gas vehicles this year.
At the same time, tepid economic growth in the U.S. and abroad has customers eschewing faster but higher-priced air shipping in favor of cheaper ground alternatives. That helps UPS grab business partly at the expense of FedEx (FDX), which uses more air cargo. More ground shipping at lower fuel prices is a recipe for margin expansion, and margin expansion leads to higher profits.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.