London, Nov 26 - Investors picking stock market winners and losers during hard economic times will find the ability to win orders during a global downturn more critical than how much companies profit from falling input costs.
Analysts say that food and some cement shares are set to outperform, while oil-intensive sectors like chemicals slide despite crude falling to $50 a barrel from $147 four months ago.
When demand falls off, lower oil is cold comfort: sectors such as chemicals are big losers because companies struggling to sell products draw little succour from lower costs.
But demand for food will stay relatively stable and grain prices have fallen sharply in recent months, underpinning food and beverage stocks, for which cheaper crude offers the additional bonus of lower packaging and transport costs.
"The stickiness of demand -- whether or not it stays as the economy slows -- is a very important factor, as it's going to drive earnings," said Mark Bon, fund manager at Canada Life.
"In the eventual analysis, demand is going to be bigger than costs as a driver for shares."
This is backed up by the performance of some companies that have managed to keep their heads above water through a downturn that has taken global equities down 47 percent this year.
Last month, the world's biggest foods group, Nestle, posted nine-month underlying sales that beat forecasts and raised its full-year outlook.
And French rival Danone stuck to targets after meeting analysts' expectations for third-quarter sales.
By contrast, the world's biggest chemical company, BASF, cut its profit outlook last week and said it would cut back production, citing a "massive" decline in demand in key industries.
The food versus chemicals case only serves to illustrate what is true across the market.
"If they had a choice between earlier in the year and today, many companies would opt for earlier, when we had high oil prices but good demand," said Philippe Gijsels, strategist at Fortis Bank in Brussels.
"Airlines introduced surcharges when oil prices were high, which people could afford to pay. They would prefer a full aircraft and oil at $150 compared to a half-full aircraft now."
PRICES TELL THE STORY
Oil hit $147 a barrel on July 11 but has since fallen sharply to just over $50 as concerns about the global economy have taken centre stage.
BASF outperformed the broad Stoxx 600 in the period from beginning of the year to July 11. However, the stock has fared substantially worse than the index since then, sliding 40 percent compared to a 27 percent fall for the Stoxx 600.
The DJ Stoxx European chemicals index fell 10 percent up to July 11 compared to a 26 percent fall in the wider market as oil prices were rising; as oil fell, the sectoral index has slid 36 percent compared to a 27 percent fall in the wider benchmark.
And the DJ Stoxx European food and beverages index, home to Danone and Nestle, among others, fell 25 percent up to July 11 and since then, has lost just 8 percent, placing it among the least worst performers during that period.
"There's support for food producers from commodity and forex moves which should give some support to underlying margin trends," said Royal Bank of Scotland strategist Ian Richards.
Fortis' Gijsels said that U.S. food stocks offered even better prospects.
"About 50 percent of food is normally consumed in restaurants and now they're moving to cooking food at home, so we like packaged food stocks like Heinz and ConAgra," he said.
Bon said he was starting to look at cement stocks like Lafarge and Holcim which were set to gain from lower fuel costs and attractive demand from a focus on infrastructure in countries like the United States.
Utility stocks could also gain with relatively stable demand and cheaper inputs.
CONSUMER, CURRENCY EFFECTS
There is a link between commodity prices and demand for goods, for example, at supermarkets: a fall in fuel costs gives consumers more money to spend, a marginal comfort at a time of job cuts and salary freezes.
Bon picked French supermarkets like Casino and Carrefour and Belgium's Delhaize as likely beneficiaries.
Another factor that could help some sectors is the rise in the dollar.
Since mid-July, the dollar has appreciated 23 percent against the British pound and 19 percent against the euro, boosting companies with a big part of their turnover from the United States.
"The currency and the oil price are moving in the right direction for corporate profitability in Europe, a fact that is getting dominated by worries about demand," said RBS' Richards.