5 Stocks That Really Benefit From Lower Oil Prices

By Lee Jackson Published Feb 20, 10:25AM EST

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

The consensus belief among many on Wall Street, and surely in Washington, D.C., is that falling gasoline prices are almost like a pay raise to consumers, and they will in turn go out and buy larger ticket consumer discretionary items. A new report from Savita Subramanian and her team at Bank of America Merrill Lynch challenges that notion and says the real winners may be the consumer staples stocks.

The Merrill Lynch research, based on credit card data, indicates virtually no evidence of a large-scale pickup in spending from consumers, despite the plunge in oil. In addition, historically, industries in the consumer staples arena are the real beneficiaries of a drop in oil prices, especially when the savings rate rises.

We screened the Merrill Lynch consumer staples coverage list for stocks to buy that may indeed be the big winners. All stocks are rated Buy at the firm.

Altria Group Inc. (NYSE: MO) is a top tobacco stock to buy on Wall Street, and the company’s Marlboro brand is one of the most recognizable in the world. The company posted solid fourth-quarter numbers, but most analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate. Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return, and the analysts expect support of the strong dividend, which they believe will continue to climb, along with strong share repurchase activity.

Altria shareholders are paid a 3.8% dividend. The Merrill Lynch price target for the stock is $60. The Thomson/First Call consensus price target is $56.78. Altria closed Thursday at $55.48 a share.

ALSO READ: Meet the 2015 Warren Buffett and Berkshire Hathaway Stocks

Coca-Cola Co. (NYSE: KO) is one of the most recognizable brands in the world, and it biggest shareholder is Warren Buffett’s Berkshire Hathaway. While sales growth has been sluggish over the past year, many on Wall Street believe the company is taking the right strategic action to reinvigorate revenue growth. The strong U.S. dollar could continue to be a headwind to the international business, but the company has expanded the product line, and it posted fourth-quarter earnings that encouraged the Merrill Lynch team.

Coca-Cola investors are paid a solid 2.9% dividend. The Merrill Lynch price target is $48, and the consensus target is set at $45.36. Shares closed Thursday at $42.11.

Hershey Co. (NYSE: HSY) is another top brand that scores very high with the consumer. The iconic chocolate company had a slight earnings miss for the fourth quarter, so some Wall Street estimates have come down. The company recently announced a $250 million share repurchase plan, and it aims to use simpler ingredients in its products to cater to the growing consumer demand for more natural and locally sourced products.

Hershey investors are paid a tidy 2.0% dividend. While Merrill Lynch has a $115 price target for the stock, the consensus target is $107.27. Shares closed at $105.95.

ALSO READ: 5 Super High-Yield Dividend Stocks to Buy

Kraft Foods Group Inc. (NASDAQ: KRFT) reported outstanding results recently, but benefits plan costs are proving to be challenging for the iconic food company. The Merrill Lynch team says they believe Kraft could warrant a premium multiple, given the potential for strong earnings growth over the next several years. The analysts also cite the company’s chairman taking over as chief executive officer. Additional share repurchases are an additional positive for the food giant.

Kraft Foods shareholders are paid a very attractive 3.4% dividend. The Merrill Lynch price target is $72, and the consensus target is $59.71. The stock closed trading Thursday at $64.17.

Procter & Gamble Co. (NYSE: PG) is a solid consumer staples stock for investors to consider. The company sells lots of run-of-the-mill household items that are essentials for everyday life, and it is not content to stand pat on its laurels. It actually is innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends. While currency headwinds have weighed on recent earnings and projections, the dollar may be topping out, and that would bode well for the future.

Shareholders are paid a 3.0% dividend. Merrill Lynch has a $95 price target, and the consensus target is a touch lower at $93.21. The stock closed Thursday at $85.21.

ALSO READ: The Bullish and Bearish Case for Procter & Gamble in 2015

High-flying momentum stocks these are not. For investors looking to ride the cash bonanza and also looking for quality companies to own in a conservative long-term growth and income portfolio, any or all of these are a perfect fit.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.