Oils Plunge Is Good News For Stocks
Last week must have been hard to stomach for oil bulls. Crude oil prices took it on the chin towards the end of the week.
In fact, crude oil closed below $100 a barrel for the first time since February dropping all the way below $98.
However, oils plunge is actually a good thing for stocks.
Ill get back to that in a minute. First, lets take a look at why oil prices are taking a beating
To start with, oil inventories have been rising. Keep in mind, there are people out there who predicted oil inventories would never rise again ever. Clearly, thats not the case weve had multiple consecutive weeks of rising inventories.
Whats more, oil prices had been elevated due to tension with Iran. And while the threat of war hasnt vanished, it certainly seems like things have calmed down between Iran and the rest of the world.
And most importantly, recent economic news has been less than stellar.
Economic data has been somewhat discouraging of late, particularly when it comes to jobs. Indeed, last weeks jobs report was downright putrid and sent the markets heading south in a hurry.
Heres the thing
Cheaper oil isnt that bad of a thing. In fact, I think its good news for stocks.
You see, one of the headwinds the economy was expected to face on the road to recovery was supposedly high oil prices. The financial press often bombarded us with stories of how the economy will suffer if oil remained expensive.
Well guess what oil isnt nearly expensive as it was earlier in the year ($110 per barrel). So thats a good thing, right?
I mean, if high oil prices are a headwind, then low oil prices must be beneficial to economic growth.
I believe once the scare from the jobs report is over, investors will begin to realize the benefits of cheaper oil. Namely, companies should see lower costs this quarter. And, that means higher profits.
Remember, just about every company with a physical product (besides oil companies themselves) get a boost from lower oil and gasoline prices.
So how can you cash in on lower oil prices?
Well, prices wont stay at these levels forever. In fact, I think they could rise again by the end of the summer. So, if youre interested in oil production and exploration companies, nows the time to grab them.
Fortunately, there are plenty of penny stock companies in this space. Once the price of oil levels off, dont be afraid to load up on your favorites.
Yours in profit,
Gordon Lewis
Category: Investing in Penny Stocks, Oil Stocks
