The slump in oil prices has now continued for over a year. There was relief this year in March when crude prices moved up seemed a blip, as they are back near $40 mark now. Last Friday, prices of WTI crude oil declined 2.2% to $40.45 per barrel on Friday. WTI crude oil also registered its eighth straight weekly loss, its longest weekly losing streak since 1986. Additionally, the Brent crude oil declined 2.6% to $45.46 per barrel. Oil prices took a beating after Baker Hughes Incorporated (BHI) reported that oil rig counts increased to 674 as of Aug 21.

On Monday, price of WTI crude oil tanked 5.8% to $38.24 per barrel. The price of WTI crude oil finished below $39 a barrel for the first time since Feb 2009. Additionally, the Brent crude oil declined 6.5% to $42.69 per barrel. The price of Brent crude oil fell below the $43 mark for the first time since Mar 2009.

However, certain sectors seem to enjoy a blessing in disguise amidst the oil market rout. These sectors benefit from the oil slide in certain ways. While auto and transportation are direct beneficiaries, sectors such as retail, consumer discretionary and consumer staples also gain from low oil prices. Thus, to buy certain favorably ranked stocks from these sectors will be a prudent move.

Recent Oil Slide

WTI crude oil prices plunged around 21% in July, witnessing its biggest monthly decline since Oct 2008. Meanwhile, the price of Brent crude oil is close to going below the $40 level now. Both the crude prices are trading at multi-month low levels.

Very recently, the weakening Chinese economy and the weekly rig count report showing another increase in the number of drilling rigs operating in the U.S were responsible for the ugly slip. Recently released economic data indicated that China, the second biggest economy of the world, is suffering from a sluggish growth environment. This has curbed the demand for oil by a significant proportion. Some analysts opine that China’s economic activity may fall below 7% in the third quarter. This will hamper oil demand from the world’s second-largest consumer.

In the US, news that oil producers increased their rig count for five straight weeks shocked an already over-supplied market. The demand and supply imbalance is striking and with little hope of a steady rebound. Until China recovers and producers put a lid on volumes, crude is fated to fall. And if market predictions hold any truth, there is hardly any reason for investors in this space to rejoice.

Auto & Transportation: Direct Beneficiaries

Recently released auto sales data indicates the benefits from the low oil price environment. U.S. auto sales came ahead of expectations in July, fueled by demand for light trucks and sport-utility vehicles rather than fuel-efficient cars.

The seasonally adjusted annual sales rate (SAAR) climbed 3.2% from June to 17.6 million in July, its second highest tally in a decade. Meanwhile, domestic vehicle sales rose 5.2% to an annualized rate of 14.2 million in July, which exceeded the consensus estimate of 13.5 million.

Meanwhile, the Dow Jones Transportation Average (DJT) has gained while oil prices slumped. Airlines industry, included in this sector, is a major gainer from this situation. In the second quarter, the aviation industry is said to have amassed record quarterly profit of more than $5 billion. Plunge in fuel prices coupled with strategic investments to bring in more passengers on board have buoyed profit margins.

Fund to Buy

Fidelity Select Automotive Portfolio (FSAVX - MF report) invests a majority of its assets in companies that manufacture, market and sell automobiles, trucks, specialty vehicles, parts, tires, and related services. The non-diversified fund invests in both US and non-US companies, primarily in common stocks.

Fidelity Select Automotive Portfolio carries a Zacks Mutual Fund Rank #1 (Strong Buy). FSAVX’s 3 and 5 year annualized returns are 18.2% and 13%. The expense ratio of 0.85% is lower compared to category average of 1.46%.

Retail: Indirect Beneficiary

Along with strong labor market conditions, decline in oil prices has played an important role in increasing consumer spending in recent times. According to the “advance estimate” released by the U.S. Department of Commerce, Real Personal Consumption Expenditure rose 2.9% during the second quarter, higher than the first quarter’s growth rate of 1.8%.

Funds to Buy

Putnam Global Consumer A (PGCOX - MF report) invests in mid to large companies that are involved in the manufacture, sale or distribution of consumer staples and consumer discretionary products and services.

Putnam Global Consumer A currently carries a Zacks Mutual Fund Rank #1. PGCOX boasts year-to-date return of 4.4% and has returned nearly 4.9% over the past 1 year. The 3 and 5 year annualized returns are 13.9% and 14.5%. The expense ratio of 1.29% is however higher compared to category average of 1.27%.

Rydex Retailing Investor (RYRIX - MF report) seeks growth of capital. RYRIX invests almost all its assets in equities of US-traded retail companies. Apart from investing in small to mid-cap retailing companies, RYRIX may also buy ADRs to get exposure to foreign retailers. RYRIX may also invest in derivatives and US government securities.

RYRIX currently carries a Zacks Mutual Fund Rank #2 (Buy). RYRIX’s 3 and 5 year annualized gains stand at 14.7% and 18.5%. The annual expense ratio of 1.33% is lower than category average of 1.46%.

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