Cars line up for gas at Sam's Club in Pleasantville, N.J., as Sandy makes its way up the East Coast Friday Oct. 26, 2012. (Photo: Vernon Ogrodnek, AP)
NEW YORK -- Meteorologists, news media, homeowners and government
officials aren't the only ones closely tracking the mega-storm roaring
up the East Coast . Stock investors are watching, too.
The reason: Big storms like Sandy aren't just weather events, they are financial events, too.
weather causes property damage caused by wind, rain, flooding, downed
trees and power outages. Early damage estimates for Sandy are roughly
$5 billion, according to Bloomberg News, citing data from Kinetic
Analysis. Nasty storms also spur spending by consumers gearing up for
the storm, as well as after the storm, when money is spent to restore
damaged property to pre-storm condition.
a result, many stocks are moved by a storm's potential impact. Some,
such as shares of home-improvement retailers and makers of
gasoline-powered generators, benefit - at least in the short term. Other
stocks often take an early hit, such as property/casualty insurers that
have to pay out still-unknown amounts of damage claims to
"When this type of storm approaches the U.S., you
typically see interest in stocks that tend to have an uptick in sales
from storm-related preparation or clean-up," says Paul Hickey,
co-founder of Bespoke Investment Group.
Hickey calls stocks that move the most "Hurricane Stocks."
impact of a storm from a money standpoint is typically felt in three
stages. First comes the pre-storm spending spree, when homeowners shell
out cash for supplies needed to survive and ride out the storm. They buy
generators, water, candles, non-perishable foods, flashlights and
batteries. During the storm, people in its path hunker down, and traffic
to retail outlets dwindles. Stage three encompasses the days and weeks
after the storm, when clean-up and rebuilding begin. It's also the time
when insurance companies do what they do: pay out claims to get
homeowners and businesses back on their feet.
Here are some "Hurricane Stocks" to watch:
• Home improvement retailers.
Home Depot (HD) and Lowe's (LOW) are two of the go-to stores when
damaging winds, torrential rains and flooding are bearing down on
homeowners. Big box stores like Costco (COST) that sell pretty much
everything are also in play. They all sell the stuff that can stave off
disaster. They sell sump pumps that keep basements dry. They sell
generators that keep the power on when the electricity goes out. They
sell plywood that protects windows from glass-shattering wind.
retailers also sell things that help homeowners put their homes back
together once the storm has passed. They sell pumps to drain flooded
basements, vacuums to suck up water, and power tools to remove fallen
trees and limbs.
Friday's performance: Home Depot actually fell
0.7% to $60.04 and Lowe's declined 1.4% to $31.36. The home-improvement
sector has been one of the market's best performers in 2012 as housing
recovers. But they have been victims of profit taking in recent sessions
due to a surprise drop in September existing home sales announced
Friday. Costco was up 0.3% to $96.94..
• Generator makers.
When the power goes out, gassed-up generators are turned on to keep the
lights on, sump pumps pumping and refrigerators cold. One pure play is
generator maker Generac (GNRC). Another is Briggs and Stratton (BGG),
which in addition to generators also makes lawn mowers and snowblowers.
Friday's performance: Generac rallied 2.9% to $28.33, while Briggs rose 2.2% to $19.03.
• Property and casualty insurers.
When the roof blows off, windows shatter or a tree falls and crushes
the garage, it is the job of home insurers, such as Allstate, Travelers
and Chubb, to pay up. So the knee-jerk reaction is for investors to sell
these stocks as a storm makes news. But since most homeowner policies
don't cover water damage caused by rising water, and given that a bad
storm with big insurance payouts often leads to higher future premiums,
home insurance stocks typically don't fall as much or fall as long as
logic would suggest, says Meyer Shields, an insurance analyst at Stifel,
"Most of the time the stocks snap back because it turns
out to be not so bad, or it is bad enough so there is increased pricing
power for the insurers," Shields says.
Insurers and re-insurers
have also benefited from a year largely devoid of major natural
disasters, which means they are in good financial shape to deal with
whatever this storm has in store, Shields says. And while $5 billion in
insured losses sounds like a lot, it pales in comparison to the insured
losses of $62.2 billion incurred after Katrina, according to MunichRe.
Last year's Hurricane Irene had insured losses of $5.6 billion.
insurers have their own insurance from so-called re-insurers to protect
themselves from catastrophic financial losses due to massive payouts to
policyholders, says Tom Larsen, senior vice president at Eqecat, a risk
modeling firm. That softens the financial hit, he says.
Friday's performance: Chubb fell 1.8% to $77.96, Allstate declined 0.9% to $40.15 and Travelers lost 0.8% to $71.56.