Strategy Blog


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Low gasoline prices in US are like an unrestricted subsidy for consumers - where is the investment opportunity?

Highlights

  • US gasoline prices have been below $3.00/gal since Dec 2014 after spending most of 2011-2014 between $3.50-$4.00/gal
  • Fuel savings acts like an unrestricted subsidy for consumers, they can choose what to do with the new found money
  • Currently, we think consumers are splitting the cash between savings and going out to eat.  As a result, the Restaurant sector is the investment play on lower gasoline prices.

Research & Analysis

As the price of oil declined, so too has the price of gasoline in the US.  Gasoline prices in the US are now at five year lows as the chart below shows. For reference, $3.00/gal is approx. $0.79/L.

 

Some of the fuel cost savings are being diverted to, well, savings. The personal savings rate in the US has seen a sustained increase of ~50 basis points (or 10%) since December 2014.

 

We dug a little deeper and have developed an investment thesis that, in addition to increased saving, the restaurant industry in  the US is also a major benefactor of lower fuel costs. The chart below shows how retail sales excluding food services have actually declined since November 2014, while food services have maintained their growth trend. We expect spending on food services to continue to trend up. Here’s some further reading on US retail sales.

 

Current Strategy

Medium-term Investment Strategy

  • BUY restaurant companies with vast majority of revenue in the US.

Triggers for Strategy Change

  • Higher oil and thus gasoline prices.
  • Changes in spending/saving habits of the US consumer.

Categories

  • Type: Investment Strategy Thesis
  • Geography: US
  • Sector: Retail
  • Sub-sector: Restaurants
  • Area(s) of Analysis: Personal Savings Rate, Food Services revenue