It is now generally accepted that global warming is a reality and is the cause of the unusual weather patterns experienced around the world in the last few years. The sheer size and force of Hurricane Sandy has prompted many states to make sure they will be prepared for the next big natural disaster. Secondly, the fact that this particular hurricane hit such a vast population base, as well as a city that has global importance and media influence is likely to have a greater impact on the public imagination.
Short-term Investment Ideas
Unless they already had one, most residents of the TriState area affected by Hurricane Sandy wished they had possessed a propane- or gasoline-powered generator. This would have provided them with heat, light, and possibly a water-free basement. Given this scenario, the first company that springs to mind is Generac (GNRC). This entity is a manufacturer of gas-powered generators for home and commercial use. However, by the time most subscribers read this article the stock may well have doubled in price. That said, we still view further potential upside as worthwhile, and encourage investors to take a good look at this issue. Another company that is likely to benefit from long-term electrical outages is Briggs & Stratton (BGG). This company fabricates small two-stroke engines for the production of chain saws, generators, pumps, lawn mowers, and snow blowers. Briggs & Stratton’s stock may not have the percentage increase potential as GNRC, but it ought to profit from higher unit sales as the public buys generators, sump pumps, and snow blowers ahead of a potentially tough winter. A company that should benefit from power restoration is Mastec (MTZ). This company specializes in designing, building, and repairing infrastructure for the petroleum, electrical, and water industries, and should certainly provide some short-term capital gains potential. We would also imagine that firms which produce batteries for emergency lighting and heating and water purification would gain. The obvious candidate here is Energizer (ENR). The leading supplier of battery-powered lighting and heating equipment, specifically used for camping, is REI Outdoor, a privately held cooperative. Cabelas (CAB), a manufacturer of firelighters and other survival equipment should also be a winner.
Medium- and Longer-term Investment Ideas
Over the next few quarters, we expect Lowes (LOW) and Home Depot (HD - Free Home Depot Stock Report) to do well, as consumers repair damaged property and stock up on emergency supplies. Too, roofing firms, especially Beacon Roofing (BECN) and Owens Corning (OC) ought to register a good showing. Companies that supply pressure treated lumber for reconstruction (boardwalks and houses) such as Lumber Liquidators (LL) are also likely to get a sales boost.
In the longer term, we think that property & casualty insurance companies with the greatest market share in the northeastern states are liable to benefit. In particular, on the commercial side, we view The Chubb Corp. (CB), and The Travelers Companies (TRV - Free Travelers Stock Report) favorably. On the homeowners and auto side, we favor Allstate (AA) and Progressive (PGR). Preliminary estimates of $10 billion to $20 billion in insured losses have been assessed. This would mean that in the near term, earnings are liable to suffer due to the huge number of payouts and potential litigation costs. Over the longer term, however, these P&C insurers should profit from higher premiums and higher volume, thanks to greater demand for more coverage, and reduced industry capacity, as many of the weaker insurance companies bow out, not able and/or willing to shoulder the greater potential liabilities.
At the time of writing, the author didn’t have any positions in any of the companies mentioned.