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Low U.S. Gasoline Prices Fuels Summer Travel…And An Investment Opportunity

Highlights

This provides additional information or updates to our existing investment strategy. Most recent post(s):

This macroeconomic view provides the top-down perspective for our consumer discretionary sector investment strategy.

  • U.S. gasoline prices are expected to be at multi-year lows this summer.
  • U.S. food services sales were a little soft in June but we expect a rebound in July and continued growth for the rest of the year.

Where appropriate for clients’ risk tolerance and objectives, we continue to add consumer discretionary holdings (while ensuring a portfolio doesn’t become too concentrated in this sector).

Research & Analysis

1) Gasoline Prices

 

In nominal terms (not inflation adjusted) prices are at five year lows.

 

 

The U.S. Department of Energy, through the Energy Information Agency (EIA) suggests real (inflation adjusted) gasoline prices this summer will be the lowest in ten years. That period includes the housing crises and subsequent great recession. No matter how you slice it, gasoline prices are low.

 

 

2) Retail Sales

 

Retail Spending in the U.S. continues to favour the food services industry. We expect the flat June number reflects, to some extent, the gasoline price increase that month (off 5 year lows). We expect sales will rebound once again in July. However, we will watch this statistic carefully, making investment strategy adjustments if/when the food services trend changes.

 

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: nominal gasoline prices, real gas prices, food services revenue, Energy Information Agency short-term economic outlook, EIA, EIA STEO

 

 

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