NEW YORK (Real Money) -- Oil is gushing toward the sky as new wells and new technology (hydraulic fracturing, in particular) boost U.S. oil production. The flip side is that as supplies increase, oil prices decline. CNBC just reported that U.S. crude oil prices have fallen nearly 30% since June.
A recent article in The Wall Street Journal highlighted industries that are benefiting from the boost in U.S. oil production and the subsequent drop in fuel prices, including airlines, delivery companies and automakers.
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Fuel is an airline's largest expense. The Journal says that, in total, U.S. airlines spend $51 billion a year on fuel. Also according to the paper, Airlines for America, an industry trade group, estimates that every penny per gallon change (up or down) equates to $190 million in annual fuel expense for the airline industry. The express-delivery industry also profits because of the fuel costs associated with its planes and trucks.
A third beneficiary of falling fuel prices is the auto industry. As fuel prices drop, Americans seem to forget about being parsimonious with their gas consumption and start buying sport utility vehicles (SUVs) and big pickup trucks. For example, as the Journal reports, Chevrolet Suburban sales are up 16% this year. Larger vehicles have fatter profit margins, which is how automakers benefit from the rundown in oil prices.
If you want to capitalize on the drop in oil prices, take a look at Delta Air Lines (DAL) . To find stocks worthy to recommend, I employ a battery of strategies modeled on the thinking of some of history's greatest investors. One of these gurus is James P. O'Shaughnessy, and my strategy based on his approach strongly supports the idea that Delta is worth buying now. It's really two strategies -- one for growth companies, and one for value companies.
The O'Shaughnessy growth strategy favors Delta's large market capitalization ($36 billion), its earnings per share, which have increased in each of the past five years, and a price-to-sales ratio of just 0.91, nicely below the 1.5 maximum allowed. The P/S ratio is a measure of how well a stock is priced.