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August 27, 2012 / redman59

Tropical Storms, Hurricanes, and Stocks

*** Originally written on 8/27/2012***

With Tropical Storm Isaac approaching and mostly likely to become a hurricane, I decided to look at what industries and stocks can benefit and be hurt from these natural disasters.  The following are industries that tend to be negatively impacted by hurricanes:

  • Insurers – property and personal injury impact.  Leading property insurers include: AIG, HIG, TRV.  One thing to keep in mind is not to look at all insurers as some have little exposure to property and casualty damage (ie. MET)
  • Utilities – quarterly cost rise due overtime expenses for restoring power.  Some stocks included: DUK, PGN, D, ED
  • Airlines & Air Freight – flight cancellations to also include air shippers.  We are already seeing this occur with TS Isaac as all New Orleans flights have been cancelled.  Some stocks include: DAL, LUV, UPS, FDX

Industries that are positively impacted by hurricanes:

  • Supplies – demand for emergency essentials such as batteries, bottled water, fuel, etc.  Stocks include: WMT, COST, LOW, HD, CVS.  The homebuilders are the obvious among investors and public but James Altucher provides further research on that.
  • Credit Card Issuers – people finance their emergency purchases with cards.  Some stocks include: V, MA but the article states the lager beneficiaries are bank issuers of cards to include: COF, JPM, AXP

The above information was provided by Trefis.  Further I came across a Sept 2009 article (and re-stated in a 2011 interview) by James Altucher in where he went back and ran a scan to see what stocks in the S&P 1500 were up after the 8 most expensive hurricanes in history.  His findings included 4 stocks:

  • Campbell Soup (CPB) – attributed to stocking of canned goods and non-perishable items.  Has been consistently profitable.
  • Hill-Rom Holdings Inc. (HRC) – makes hospital beds, patient-room furniture and other medical products ranging from home-care systems to patient data management software for hospitals
  • Nucor Co. (NUE) – steel & infrastructure for rebuilding efforts
  • Toro Co. (TTC) – landscaping for residential, commercial and government buildings, and its services are heavily in demand after a hurricane

What I find interesting about these specific picks was that they made their 2011 bottoms around this time and traded higher through the year.   But the market made a yearly bottom before hitting a bottom again in October, although these stocks did not make a lower low at the same time.  In regards to Home Depot (HD) and Lowe’s (LOW), which many think about right away.  James found that these stocks did not always benefit from all the hurricane time periods tested, so they were left out as he was looking for stocks that were up every time after these historically worst hurricanes.

I would not blindly pick these stocks mentioned within this post just off the information provided.  I think what is important is to recognize the industries of those stocks and select stocks within that industry that are outperformers (positively impacted industries) or underperformers (negatively impacted industries).  Also keep in mind time frame as this analysis probably wouldn’t be too important to swing traders holding for a week that trade just off technical analysis.  It would be more useful for position traders that hold for more than 1 month at a time.  Another tool that the trader could use to further justify positioning is to watch the options market.  If you see big block trades going off on the put side (married put) or calls and puts (collar) in an insurer, it could be institutions hedging their current holdings expecting to see downside.  That is speculative on my part but just one thing that you could watch for directional evidence.

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