How to Profit from Rising Gas Prices
In January, the average price per gallon of gasoline was $3.38. But the national average is climbing this month, with a record February high of $3.65 per gallon. In Florida, drivers who filled up near Disney World paid $5.89 a gallon.
Wouldn't you like to feel a little better about shelling out so much cash at the pump? I think it's high time drivers get proactive by investing in industries that thrive when gas prices rise. Now, let's take a peek at some of these industries.
Crude oil is the ingredient refiners use to make gas, and drivers are paying a fortune for it. But, there are ways to profit.
My favorite driller is Continental Resources (NYSE: CLR). Over the last 12 months, the stock is beating the S&P 500 like a drum and for good reason. Continental's earnings beat last year's by a whopping 63% and the future looks bright as the company continues to ramp up production in the oil-rich Bakken Shale at a break neck pace.
As shown in the table above, the stock is outpacing gas prices as well.
After crude oil is extracted from the earth, it's off to the refinery where gasoline and other petroleum-based products are manufactured.
However, turning crude oil into gasoline isn't always profitable. This happens when the global price of crude oil exceeds the domestic price of gasoline. In this situation, refining companies are actually paying consumers for the "privilege" of manufacturing gasoline. But of course, the shortfall is usually recovered elsewhere.
Now the gasoline must be transported from the refinery to your tank, and this industry offers more opportunities for you to profit from rising prices.
First, the gasoline is shipped via pipeline to a local terminal. Then, the gasoline is loaded onto a truck and shipped to the service station.
Being a crucial part of the supply chain, pipeline companies typically do well when gas prices rise.
Aside from providing a good gas price hedge, the piping companies offer some pretty fat dividends. Check these beauties: Buckeye Partners (NYSE: BPL) 6.8%, Holly Energy Partners (NYSE: HEP) 5.9%, Sonoco Logistics Partners (NYSE: SXL) 4% and Plains All American (NYSE: PAA) 5%.
The Investing Answer: The average returns of the companies in each industry have outpaced gas prices over the last month, offering plenty of ways to turn the pain of rising gas prices into smart moves for your portfolio.
It's important to note the companies mentioned are merely a sample from each industry. There are numerous companies competing in each of these sectors that are doing quite well, but the securities mentioned happen to be my favorites.
My number one choice is the United States 12 Month Oil fund because it is the most pure hedge against rising gas prices. You may also want to check out United States Gasoline Fund (NYSE: UGA). This exchange-traded fund (ETF) is designed to track the price of gasoline as opposed to just crude oil.
Our chief investment strategist, Sara Glakas, also offers some investment tips for high gas prices in her article, "3 Profitable Ideas to Offset the Rising Price of Gas."
Now, when other drivers are wincing at the pump, you can smile with confidence that you're making the most out of rising gas prices.
A. Crawford does not hold positions in any securities mentioned in this article.