Oil appears to be the story of the day--or week. The price appears to be bouncing a little bit, after dropping to a 20-month low earlier, at $50.28 a barrel. (We haven’t seen that level since May 25, 2005.) Many investors now wonder if it will fall below the psychologically important $50 per barrel mark. Where’s the fast money in this volatile environment? We asked "Fast Money’s" Jeff Macke who is also a retail analyst.
There’s big money to be made from sinking oil prices . Most investors think the way to play this market is on the long side, or on the futures contracts, but falling oil prices can be played straight to the retail side.
“I like to play it with as few obstacles as I can,” explained Macke. “Instinctively people start buying the airlines and the automakers when fuel breaks. The problem, particularly with the airlines, is that you don’t know how these guys have been hedging their fuel bets.”
It might come as no surprise that a retail analyst recommends making money from falling oil prices by thinking consumer. “The consumer, year-over-year gas price change actually does correlate quietly closely to same store sales for the retailers,” he said.
“[Lower] gas prices leave more money in the consumers pockets, and they’re going to spend that out at the retailers. People feel wealthier when you’re not paying $4 a gallon for gas.”
With so many options – what looks good to Macke?
“What I’m looking at is the grocers, which is where you get a lot of leverage if they improve themselves operationally.”
“These are companies that traditionally operate at a 2% operating margin.” (Meaning that if you spend $100 at the store they make $2 on that.) "When they’re improving they’re some of the [best performing] names in all of retail ...the stock becomes more valuable.”
"Fast Money" airs Mon-Fri at 8 pm on CNBC.