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Gasoline Prices to Remain Low: 4 Travel Stocks to Buy Now

Zacks

With Memorial Day weekend less than two weeks away, gasoline prices usually rise during this time of the year as motorists take to the roads for summer travel. But in an unusual development, consumer gas prices have gone down lately.

According to the Energy Information Administration (EIA), the U.S. weekly regular gasoline retail prices per gallon reached an average of $2.369 for the week ended May 15, 0.3 cents down from the previous week's nationwide average.

In its Short-Term Energy Outlook, the EIA projects average pump price to average $2.34 per gallon this year. Agreed, they are more expensive than last summer's $2.15 – the lowest since 2004 – but those ultra-cheap prices came in a year when oil plunged all the way to a low of $26 per barrel.

To put things in perspective, retail gas averaged $3.36 per gallon in 2014 and $2.43 in 2015. Therefore, drivers could still expect bargain prices this summer compared to just a few years ago.


What's Behind Low Prices at the Pump?

Supply Glut: The U.S. Energy Department's latest weekly inventory release showed that supplies of the existing stock of the most widely used petroleum product – at 241.1 million barrels – is now higher than the year-earlier level of 240.6 million barrels and is in the upper half of the average range for this time of year. Worryingly, domestic gasoline inventories reflect an increase of around 5 million barrels over the last month and a surplus of 20.7 million barrels to the five-year average.

High Refinery Production: U.S. refinery activity remains high at 91.5%. In fact, refinery utilization has averaged almost 93% during the past four weeks ending May 5, greater than the year-ago rate of 89.1%.

In essence, downstream operators are ramping up their run rates but there is lack of market demand to absorb the products they are churning out. This is particularly troubling because gasoline demand typically strengthens around this time as summer driving picks up.

Lower Crude Prices in Recent Weeks: Oil prices have been on a freefall over the past few weeks, erasing all the gains associated with the OPEC-led output cut. The continued rise in domestic production thanks to soaring shale output have dragged down the commodity below the psychologically-critical $50 threshold. The collapse in crude has markedly reduced the average price of U.S. gasoline.

Gasoline prices are dependent on four factors: crude oil price, taxes, refining costs and marketing and distribution expenses. According to the EIA, crude oil costs account for about half of gasoline prices. Therefore, the worldwide demand and supply for crude oil is a major factor in deciding gasoline prices.

The Case for Travel/Leisure Stocks

According to the American Automobile Association (AAA) and IHS Global Insight, about 34.6 million travelers are forecast to travel by road during the weekend, 2.4% more than last year. If the prediction is to be believed, then this Memorial Day weekend might be the busiest in more than a decade, with the highest travel volume since 2005.

With the U.S. economy improving and consumer confidence remaining strong, more Americans are taking vacations. Further, declining gasoline prices has been an added incentive for consumers who are benefitting from a much-improved job market and rising disposable income.

4 Stocks Standing Out from the Crowd

For investors wanting to take advantage of the travel-associated landscape, we present four companies that may deserve attention. Each of them has a favorable Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Finally, the chosen ones have VGM Score less than or equal to B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 offer the best upside potential.

The Marcus Corp. MCS: Headquartered in Milwaukee, WI, The Marcus Corp. is engaged in the lodging and entertainment industries. It operates through two segments: Movie Theatres, and Hotels and Resorts. The 2017 Zacks Consensus Estimate for this company is $1.65, representing some 21% earnings per share growth over 2016. Next year’s average forecast is $1.80, pointing to 9% growth.

Zacks Rank: #1

VGM Score: ‘A’

Intrawest Resorts Holdings Inc. SNOW: Intrawest Resorts Holdings operates as a mountain resort and adventure company which delivers vacation and travel experiences to its customers. Over the past 30 days, the Denver, CO-based firm has seen the Zacks Consensus Estimate for fiscal years 2017 and 2018 increase 13% and 10%, to 88 cents and $1.21 per share, respectively.

Zacks Rank: #1

VGM Score: ‘B’

Reading International Ltd. RDI: Culver City, CA-based Reading International is engaged primarily in the ownership and management of entertainment and other real estate assets. The company has expected earnings growth of 35% for the current year. Its earnings estimate for the current year has improved by 5% over the last 30 days.

Zacks Rank: #2

VGM Score: ‘B’

Marriot Vacations Worldwide Corp. VAC: Orlando, FL-based Marriot Vacations Worldwide markets and manages vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands, The Ritz-Carlton Destination Club brand and The Ritz-Carlton Residences brand. The company has outperformed earnings estimates in three of the last 4 reported quarters.

Zacks Rank: #2

VGM Score: ‘B’

Bottom Line

With gasoline prices expected to stay relatively low all summer long, it’s a good time to take advantage of the above-mentioned travel and leisure stocks that look set to benefit from the improving environment.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


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