Bank of America says to buy these energy stocks, sell these consumer names as oil prices soar

Published Fri, Oct 22 20211:27 PM EDTUpdated Fri, Oct 22 20213:00 PM EDT

As oil prices climb, Bank of America advised investors to buy energy stocks and dump consumer names. Oil prices rose Friday, building on a rally that has taken the commodity to multi-year highs recently. U.S. oil benchmark West Texas Intermediate crude futures settled above $83 per barrel level Wednesday, their highest since 2014. Brent crude futures settled above $85 per barrel that day, their highest since 2018. "Higher oil used to be a benefit for the S & P 500 … but it is different this time," Bank of America's Savita Subramanian said in an Oct. 22 note. "We expect benefits from higher oil prices to be far less than what it used to be." According to the bank's analysis, oil beneficiaries comprised more than 20% of total S & P 500 earnings during the 2011 to 2014 period when oil was last above $100 per barrel. They now make up 6%, the bank found. However, one sector is certainly poised to benefit, Bank of America said. The energy sector is already the best-performing S & P 500 cohort this year. "As the energy market remains tight, we remain bullish on the Energy sector, while underweight Consumer sectors (both Consumer Discretionary and Staples) that have historically underperformed when oil prices rose," Subramanian said. "How to invest: buy energy, sell consumer." Energy stocks to buy Bank of America screened for the energy companies that have historically seen the greatest positive correlation to WTI oil, excluding stocks rated underperform by the firm's analysts. Take a look at the top five names on Bank of America's list: Schlumberger has the greatest correlation to WTI crude on the list at 47.7%. The company is in the oilfield services business. Energy exploration and projection company Hess takes the second spot with a correlation of 45.9%. The third name on the bank's list is Halliburton , a 44.2% correlation. Like Schlumberger, Halliburton is an oil field service company. Rounding out the list are Marathon Oil and Pioneer Natural Resources . Consumer stocks to sell Higher oil costs mean consumers spend more of their money on gas, leaving less cash for other purchases. That is why consumer companies tend to be hit hardest when oil prices rise, Bank of America noted. "The U.S. consumer has not seen this magnitude of an oil hit in 10 years, and fuel costs as a percentage of wallet will rise further as the world re-opens," Subramanian said. Bank of America screened for the consumer companies that have historically seen the greatest negative correlation to WTI oil — that is, as the cost of oil rises, the price of the company's shares declines. Here are the top five names on the firm's list: General Mills ' share price is most inversely related to oil prices, according to Bank of America's analysis. The food company has a 22% negative correlation with WTI oil. Next on the list is consumer products name Clorox Company . The company is 20.5% negatively correlated with oil prices. Dollar General also appeared on the bank's list. The bank noted discount retailers are typically hit hard by higher oil prices. "Low income consumers are disproportionately hurt, and discount retailers represent over 10x the S & P earnings contribution of luxury goods," Subramanian said. Other companies to make the list include Kimberly-Clark and McDonald's . —CNBC's Michael Bloom contributed to this report.

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As oil prices climb, Bank of America advised investors to buy energy stocks and dump consumer names.