With prices of certain commodities at multi-year lows, brokerages are recommending commodiy-linked stocks to their clients to cash in on this trend. Energy and consumer stocks could benefit from dip in prices of crude oil, analysts say.
?Softer prices of agricultural products and oil derivatives, which serve as raw materials for consumer companies, will result in an improvement in gross margins of consumer staples companies. For energy companies, the impact on earnings is unclear even though overall under-recoveries will come down meaningfully,? Kotak Institutional Equities said in a recent report.
With crude oil derivatives contributing about 34% to its total raw material cost, Asian Paints stands to gain from the dip in the crude oil prices. Brent crude slipped 12.92% in the last three months and Asian Paints has gained 10.14% during the same period. Essel Propack, which uses crude-oil-based polymers for its plastic packaging business, has gained 14.94% during the same period.
According to Bloomberg, Asian Paints is currently trading at 51.36-times its 12-month trailing earnings with the 12-month trailing EPS of 12.71. Essel Propack is trading at 18.14-times its 12-month trailing earnings against a 12-month trailing EPS of Rs 6.87.
While the downtrend in crude prices augurs well for paint stocks and plastic packaging providers, non-integrated steelmakers stand to gain from the falling iron ore prices. For JSW Steel, 32% of its total raw material costs is spent on iron ore lumps. With the iron ore lump prices falling 1.82% in the last three months, the scrip has gained 1.01%. In the last two months, the gains have been sharper with the scrip gaining 5.96%.
Analysts at Motilal Oswal Financial Services believe JSW Steel stands to gain the most from lower iron ore prices. ?Non-integrated steel producers like JSW Steel may not see pressure on margin as cheaper iron ore and coking coal prices reduce costs for them,? MOFSL said in a recent report.
Also benefitting are tyre stocks. Apollo Tyres has gained 1.08% in the last three months with rubber prices plunging 15.03%. In the last two months, the stock has gained 15.21%.