NEW YORK (TheStreet) -- You might think lower oil prices would be a good thing for big industrial companies like General Electric (GE) , United Technologies (UTX) or Caterpillar (CAT) . But Deutsche Bank strategists believe the opposite is true.
"Industrials have some downside that's not fully appreciated by investors to their earnings outlook," said David Bianco, chief U.S. equity strategist. His comments came during a breakfast with reporters on Wednesday, during which Deutsche Bank shared its 2015 markets outlook.Read More: Cheap Oil Isn't the Only Reason Warren Buffett's Fracking Bet Looks So Risky
Even though manufacturers are big consumers of oil, they rely even more heavily on oil companies buying their products. That connection is easier to see with GE and Caterpillar, which have dedicated oil and gas divisions. But United Technologies' Sikorsky Helicopters also gets a lot business from offshore oil and gas explorers, as shown by its 2013 report to shareholders.
Boeing (BA) , meanwhile, just finished producing a new line of fuel-efficient jets that are suddenly not as critical to air carriers. A Boeing executive told Bloomberg that demand hasn't slackened yet, but Boeing appears to be betting on a rebound in oil prices to between $80 to $100 a barrel to make that thesis hold up. Still, Deutsche Bank's Bianco cited "industrial capital goods, separate from transports" as being particularly challenged.
The bank's chief U.S. economist, Joe Lavorgna, forecasts that corporate spending on new equipment and facilities would fall by 20% to 25% if oil prices remain at just above $60 a barrel, as they are now. Surprisingly, such a cutback would have minimal impact on the overall U.S. economy, Lavorgna believes.
Equity strategist Bianco said there were other factors besides weak oil prices that could hurt the industrial sector. He cited a stronger dollar, which makes U.S. exports more expensive, as well as the continued slowing of economic growth in China, a key U.S. market.
Bianco also sees more pain in the energy sector, despite the sharp selloff in energy stocks in recent weeks. He fears lower oil prices could have a devastating impact on quarterly earnings by the oil majors.
"What could be the case is we find out that profits of these companies are entirely wiped out and what they've been doing is using every bit of their profits and then some, tapping into debt to fund capex," he said. "Lenders are usually very hesitant to extend credit when you're losing money. I think that's the hard hammer that comes down on U.S. energy-related capex."Read More: Warren Buffett's Top 10 Dividend Stocks