Supercostly Crude: Winners and Losers


By Eric Wahlgren

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No one wants to think seriously about oil hitting $100 a barrel -- nearly double current prices. "We'd all be riding horses," jokes Robert Howard, editor of financial newsletter Positive Patterns in Springfield, Mo.

But is that price such a stretch? Investment bank Goldman Sachs (GS) recently warned of a possible "super-spike" that could send the price of a barrel of crude over the century mark. "It's a much more realistic scenario than oil prices going to $20 a barrel," says Robert MacKenzie, a senior analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va.

In fact, the world already came close to paying 100 bucks a barrel, sort of, more than 20 years ago. Experts note that during the energy crunch of the early 1980s, oil reached the equivalent of $83 a barrel when measured in today's prices.

ALONG FOR THE RIDE. Alas, the U.S., the world's No. 1 gas hog, is no longer the only country with a supersize appetite for the planet's shrinking supply of oil. China and India are catching up. "Demand is growing faster than supply," MacKenzie says.

Pros believe that such a high price, especially if it were sustained, would trigger a global economic crisis, ultimately proving harmful to just about everybody, including oil concerns. But on the way up, clear winners would emerge, such as oil-services stocks, as cash would flow to players skilled in finding crude and getting it out of the ground. Obvious losers would be transportation stocks and shares of any other businesses for which the fuel represents a significant cost.

With that in mind, BusinessWeek Online asked a few experts for picks on companies that will benefit and will suffer if the $100-a-barrel scenario comes to pass. Take a look at what they told us:

WINNERS

Cal Dive (CDIS)

All oil-services companies would profit richly from costlier crude, but this Houston-based outfit, which specializes in underwater construction and maintenance services, is a favorite among investing pros. "If oil prices continue to rise, you would see more and more money being spent in exploring and drilling in hard-to-reach places," says Richard Moroney, chief investment officer of Horizon Investment Services in Hammond, Ind.

FuelCell Energy (FCEL)

For the now-struggling alternative-energy industry, $100-a-barrel oil could be a real boon, experts believe. One beneficiary could be this Danbury (Conn.) concern, which makes stationary fuel cells for generating power. One of FuelCell's biggest customers has been Starwood Hotels (HOT), which has installed fuel-cell generators at certain hotels to avoid brownouts and power surges, says John Quealy, an equity analyst with Adams Harkness in Boston. "The company burns cash," Quealy says, "but it's a stock driven by ideas and promise."

Noble Corp. (NE)

If oil prices continue to climb, so will prices for rigs used to extract crude. And this Sugar Land (Tex.)-based driller, with its mix of shallow and deepwater rigs spread around the globe, "has among the highest leverage to rising prices for rigs," MacKenzie says. Plus, Noble has an extra attraction: "It has probably the best management team of any contractor."

Toyota (TM)

Sales of hybrid cars hit a record 16,619 vehicles in March, 2005, with Toyota's top-selling Prius model leading the pack, selling 10,236 cars. Sure, oil flying to 100 bucks a barrel would be a nightmare for all carmakers. And the Prius, which can get up to 60 miles per gallon, makes up only a small percentage of the Japanese outfit's business. But Peter Cohan, a business writer and president of a management consulting firm in Marlborough, Mass., thinks Toyota's stock would buck any downtrend. "They have got a hybrid Lexus [Toyota's luxury marque] coming out, and that will be very popular, too," he says.

Hydril (HYDL)

A surge in cash being spent on oil development underwater and elsewhere would be golden for this Houston-based engineering concern, predicts Mary Lisanti, president of AH Lisanti Capital Growth in New York. Hydril specializes in "premium connections," or equipment such as piping and tubing built to withstand extreme pressure and hazardous conditions. "Deepwater is just starting to get moving," Lisanti says. "Hydril would do really well."

LOSERS

Wal-Mart (WMT)

Most retailers will suffer if oil streaks to $100 a barrel, but perhaps no one will hurt more than the world's biggest, which boasts more than 100 million shoppers every week. Lee Scott, the retailer's chief exec, has already grumbled that high gasoline prices have reduced its customers' disposable incomes by an average of $7 a week. If the fuel's prices were to double, "The Wal-Mart customer would be more impacted by that," says Lisanti. "The Neiman Marcus customer might not even feel it."

Delphi (DPH)

Everybody knows most carmakers would be in serious trouble if oil doubled in price. People are going to take public transportation more often or, jeez, even walk. But also in jeopardy would be the outfits that supply the auto makers with parts, such as Delphi, which was spun off from General Motors (GM) in 1999. Delphi has already slashed its dividend and taken other measures to counter higher material costs and GM's lower vehicle production. "If GM's revenues were to go down further, GM would order still less parts," says Cohan.

Alcoa (AA)

The stock of the world's largest aluminum producer could get smashed like, well, an aluminum can, if crude costs soared. "They potentially could get caught between higher energy prices and slowing demand for their products," Moroney says. The problem? Alcoa's products are used to make oil-price-sensitive products like cars and airplanes.

American Express (AXP)

Credit-card companies would no doubt get slapped as "consumers will think twice about spending on retail" with the fuel's price so high, says Sarat Sethi, a partner at Douglas C. Lane & Associates in New York. Amex, with its large travel-services arm, could be particularly vulnerable if consumers scale back on vacationing as well as on shopping.

Starbucks (SBUX)

The peddler of fancy coffee drinks could have a grande problem if crude prices skyrocket. As energy gets costlier, those little extravagances in life like, say, a three-buck-a-cup flavored coffee drink could slowly get crowded out. "I think people who drive would stop getting their Starbucks everyday," Cohan says. "They'd probably make their coffee at home."

No doubt, a "super-spike" in oil would probably kill a lot of people's coffee buzzes -- except those of execs sitting in the board rooms of oil-services concerns and a select few other businesses. Walghren is a San Francisco-based writer


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