Comfort Zone Investing: Check your oil

Milk will cost more. Not because they're adding oil to dairy products but because higher oil prices increases the use of ethanol as an alternative fuel. Ethanol is made from corn. Corn is what they feed cattle. Milk and beef and all corn fed meat is going higher.

Tires and rubber products will have higher costs. Oil is a raw material used in their production. Plastics are going up. So are winter fuel bills.

Airlines use thousands of gallons a day.

You get the picture: oil is in many products, and a catalyst for using alternatives the higher it gets. If you own an oil and gas stock, most likely profits will continue going up. But if you own stocks that use oil, most likely margins will shrink.

You have to think through how oil affects stocks you own. It's not just the obvious ones. Who would have thought milk would go higher if oil did? No one did before ethanol was introduced as a viable fuel.

Oil is the first big domino that will affect many other dominoes, and not just the ones that immediately come to mind. If you have stocks that produce it, you should be in good shape for quite some time. If you own stocks that use it, you'll see profit margins squeezed unless hedging is used by management (see Delta Airlines Inc. (NYSE: DAL) and Southwest Airlines (NYSE: LUV) for two examples) or price increases, which can overcome oil costs, are used. In this very competitive age, however, price increases are increasingly difficult to make stick.

Check your stocks for oil content. If they're using it, you need to determine how influential it is on profit margins. The more of it they use, the more you have to wonder if the future doesn't look a little dimmer now that the price is stratospheric.