How to Profit from Rising Gas Prices

posted on 06-07-2019

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.

The benchmark for U.S. oil prices, West Texas Intermediate Crude (WTI), is on the rise. The average price for a gallon of gas could hit $4 a gallon this spring, and many economists believe oil prices will rise even further due to continued unrest in the Middle East.

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 

Crude oil is the ingredient refiners use to make gas, and drivers are paying a fortune for it. But, there are ways to profit

One way to invest in rising crude prices is through the United States 12 Month Oil (NYSE: USL) fund. The fund is an exchange-traded security that tracks the price movements of WTI crude oil

There are also the crude oil drillers, which are an investment with more concentrated risk. Let's see how some of these investments are performing in relation to the recent spike in gas prices: 

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. 

Refining

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. 

This is all to say refining stocks aren't perfect hedges against rising gas prices. But, let's look at how the refining stocks performed during the most recent surge in gas prices:

All these refiners are intriguing because of low forward P/E ratios. Valero (NYSE: VLO) offers the highest yield at 2.4% and could be ripe for a run given its poor performance over the last month. 

Distribution 

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. 

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