Goldman says $4 gas is here to stay — These stocks can withstand the sticker shock

Published Wed, Apr 13 202212:45 PM EDTUpdated Wed, Apr 13 20221:15 PM EDT

Consumers waiting for prices at the pump to cross below the $4 per gallon threshold shouldn't hold their breath, according to Goldman Sachs. The firm said Wednesday that it expects prices to remain above four bucks for the rest of the year as oil stays elevated. The adage goes that the cure for high prices is high prices, but the firm doesn't forecast any meaningful demand destruction until prices at the pump reach $4.60 — the equivalent of $200 oil. The national average for a gallon of gas stood at $4.08 on Wednesday, according to AAA . That's down from the record high of $4.33 hit on March 11, but it's still $1.22 more than consumers were paying last year. The spike in prices has been a key contributor to inflationary pressures seen across the economy. When gas prices jump there are ripple effects across industries since it means consumers have less money in their pockets to spend elsewhere. And Goldman said it's beginning to see some pressures building around its broader consumer-focused company coverage. But some names, including those with high margins, visibility into structural headwinds and exposure to higher-income consumers, should be able to weather higher prices at the pump. Energy stocks are a natural beneficiary of higher oil prices, but the sector is broad, and different companies have exposure to different areas of the ecosystem. Within the sector Goldman favors integrated oil companies that have downstream exposure, including Exxon and Canada-based Cenovus Energy . The firm also likes refiners with high distillate exposure, which includes Phillips 66 . Goldman has a buy rating on all three stocks. The firm's forecast that gas prices will hold above $4 is based on its oil outlook, which has Brent crude averaging $125 this year. On Wednesday the global oil benchmark traded around $106.30 per barrel. In March, the contract nearly hit $140 as Russia's invasion of Ukraine fueled a spike in oil prices. West Texas Intermediate crude futures , the U.S. oil benchmark, stood at $101.90 on Wednesday. "Higher oil and gas prices are a key risk to growth and spending with the [Goldman Sachs] macros team estimating that each 10% increase in crude oil prices lowers GDP growth by ~0.1pp given the drag on consumer spending as higher gas prices effectively reduce disposable incomes," the firm said. Convenience stores are one area where the impacts of reduced spending are typically felt, and so Goldman said to stick with quality names that have pricing power. That includes Hershey Company and Monster Beverage . "While it is early, rising gasoline prices (combined with broader inflation and shrinking discretionary cash inflows for consumers) appears to be weighing on packaged snack food sales in the C-store channel," the firm said. The same impacts can be felt at restaurants. Goldman said McDonald's can be a solid bet for investors since the company has traditionally outperformed peers during times when consumers are reining in spending. "We continue to see MCD as best positioned within the Fast Food peer set to benefit from potential consumer 'belt-tightening' if inflation (including higher retail gas prices) impacts consumer spending," the firm said. — CNBC's Michael Bloom contributed reporting.

Consumers waiting for prices at the pump to cross below the $4 per gallon threshold shouldn't hold their breath, according to Goldman Sachs.

The firm said Wednesday that it expects prices to remain above four bucks for the rest of the year as oil stays elevated. The adage goes that the cure for high prices is high prices, but the firm doesn't forecast any meaningful demand destruction until prices at the pump reach $4.60 — the equivalent of $200 oil.