The price of West Texas Intermediate oil has retreated slightly from its recent high of $91.48, which was the most elevated price for the commodity since November 2022. As of the morning of Sept. 26, WTI oil was changing hands around $88.67. At that high level, oil prices hurt many companies, including airlines and cruise operators, both of which use a great deal of fuel derived from oil. And with airline ticket prices rising, consumers travel less, hurting other companies that cater to tourists. Finally, some automakers will be hurt by higher oil prices, while the profits of companies that sell products that are made with large amounts of oil, such as paint and plastics, will also take a significant hit. Here are three stocks to avoid until oil prices retreat much further.
Royal Caribbean (RCL)
Since cruise operators use so much fuel to power their huge ships over long distances, they often add surcharges to passengers’ tickets when oil prices get very high. Alternatively, the cruise operators’ profits sink significantly amid elevated oil prices.
Of course, both of these scenarios will be very negative for Royal Caribbean (NYSE:RCL), one of the leading names in the sector. In the first case, RCL will have to raise prices, causing demand for its cruises to sink. And with many consumers already getting tired of “revenge travel” and still being negatively impacted by elevated inflation, the resulting decrease in its demand could be very large indeed. In the second scenario, its bottom line will be lowered meaningfully.
Both of these situations, of course, would be negative for RCL. Also worth noting is that the cruise operator had a massive $21 billion pile of debt as of the end of last quarter. If RCL’s profits drop due to high oil prices, it may have to sell more of its shares to pay back its debt, putting significant downward pressure on its shares.
Akzo Nobel (AKZOY)
Last year, CNBC explained that “Paint companies… use a significant amount of petroleum-based raw materials.” and “The price of crude oil is directly proportional to the cost of paint manufacturing.”
Given these points, it’s logical to assume that Akzo Nobel (OTCMKTS:AKZOY), one of the leading paint manufacturers, will be hurt by the current high oil prices, making it one of the stocks to avoid at this time.
Moreover, Akzo Nobel is likely being significantly hurt by the relatively low number of housing starts in the U.S. and by fragile economic growth in Europe.
Indeed, in the first half of this year, its revenue was flat versus the first half of 2022, as its sales volumes dropped 2%. However, higher prices and lower costs enabled its operating income to rise 5% year-over-year.
But higher oil prices will likely push its operating income down significantly this quarter.
Hawaiian Holdings (HA)
Since Hawaii is far from most other regions, most of Hawaii Holdings’ (NASDAQ:HA) flights use large amounts of oil. As a result, the company’s profit margins are likely to be more negatively impacted than those of many of its peers by high oil prices.
Moreover, I recently heard HA’s CEO, Peter Ingram, told CNBC that the airlines continue to be negatively affected by the tragic fires in Maui.
In addition, Bank of America recently issued a pessimistic note about the airline sector in general, citing high fuel costs and potentially reduced “pricing power” as demand wanes amid higher supply and less powerful demand trends.
Given all of these points, HA is definitely one of the stocks to avoid at this point.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
