February 23, 2024


Built General Tough

4 Stocks to Hold onto as the Mother Nature Wreaks Havoc

The U.S. state of Louisiana faced the fury of Mother Nature via Hurricane Ida, which struck the place and is causing widespread destruction. It is the ninth named storm, fourth hurricane and the second major hurricane of the 2021 Atlantic hurricane season. Ida hit the said US province exactly 16 years after Hurricane Katrina but is less impactful than the latter.

Nevertheless, the hurricane, will cause huge losses and damage to businesses, individuals, properties and infrastructure The after-effects of nature’s wrath are not just limited to the physical boundaries but also extend to the stock markets.

Per J.P. Morgan’s study, historically, companies in energy, industrials, consumer discretionary and staples, and the financial sectors typically outperformed in the week before and in the period following major hurricanes. Stocks of the insurance players, however, suffers as they had to eke out claims against the insured losses.

Above-Average Atlantic Hurricane Season

According to National Oceanic and Atmospheric Administration(NOAA) the 2021 Atlantic hurricane season has a 65% chance of being above-average and only a 10% chance of seeing a below-normal season. Warm sea-surface temperatures and ENSO-neutral and La Nina are supporting the enhanced storm activity. The Atlantic hurricane season reaches its peak typically in mid-September and more activity is anticipated in the coming weeks and month in the Atlantic Ocean. This means that worse devastation can be on the way, inducing more rebuilding activity.

The Vulnerable Cohort

Stock prices of providers of property and casualty homeowners insurance may take a hit. Fitch Ratings Inc. estimates show a potential insurance industry loss to the tune of  $15-$25 billion from the Hurricane Ida. Per the rating agency , the setback will not be a capital but an earnings event. This means that Ida will weigh on the underwriting margins of insurers but will not destabilize their capital position since the insurance industry is well-equipped to weather the magnitude of such a loss.

Wells Fargo analyst Elyse Greenspan anticipates insured losses from Ida between $15 billion and $20 billion and that some insurers and reinsurers may temporarily pause their stock buybacks until the hurricane season ends.

Insurers with the likes of CNA Financial Corp., American International Group Inc.,, Chubb Ltd. and The Travelers Cos. Inc. have business exposure in the hard-hit areas. Insurers might be touched slightly by this storm but the potential damage that may be caused by the higher-than-expected hurricane season with a few days left before the season gets over makes the insurance industry a vulnerable one.

How to Profit From the Destruction

It’s hard to assess the manner in which one could reap benefits from a wreckage but investing in stocks that gain from such a scenario is one of the foolproof ways. It is found that infrastructure and power companies have continuously outperformed the market during the high-activity hurricane years. Alongside, infrastructure stocks will get a boost from the $1.2-trillion stimulus package passed by the Senate (the same is but awaiting an approval in the House of Representatives). This places utilities and infrastructure sectors favorably for growth.

Stocks from other industries, such as home improvement, logistics, second-hand car dealers, generators, clean water providers, et al are set to gain.

We thus select stocks with potential to surge ahead and provide handsome returns. We recommend investors to retain these in their portfolio.

Masco Corporation MAS is solidly placed to benefit from the rebuilding activities post damages. The company is a leading provider of plumbing products, which form the bulk of Masco’s sales — almost 63% in 2020 — and contribute generously to its profits.

It is also a long-term option on the back of an uptick in global construction, both residential and non-residential. The company’s inorganic strategies, cost-saving initiatives and industry-leading branded building products make it a stock to hold onto for long-term gains.

For the current year, the company’s earnings and sales are pegged at 18.59%and 14.97% growth, respectively. The stock currently has a Zacks Rank #3 (Hold) and soared 10.54% year to date compared with its industry’s growth of 15.83%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CarMax Inc. KMX is one of the largest retailers of used vehicles in the United States. It also provides customers with a full range of related services including financing of vehicle purchases and the sale of extended warranties, accessories and vehicle repair services through CarMax Auto Finance (CAF). The company’s products and services see huge demand in the aftermath of storms and hurricanes, which inflict damage on cars and vehicles.

The company has bright prospects with store-expansion initiatives and high-quality product offerings. With the acquisition of Edmunds under its belt, the company solidified its position in the used auto ecosystem. It aims to achieve $33 billion in revenues and sell two million units, annually combined, through its retail and wholesale channels by FY’26.

Its omni-channel offering remains a critical component of the company’s long-term strategy and is likely to boost revenues in the future. The stock carries a Zacks Rank #2 (Buy) at present. The Zacks Consensus Estimate for the current-year earnings and sales stands at 57.08% and 39.54% growth, respectively.

Caterpillar, nc. CAT usually gains after a major hurricane. It played a pivotal role in the recovery efforts post Hurricane Sandy by clearing debris and providing immediate support for the equipment and volunteers. The company also gained after the hurricane Katrina caused a huge damage from Louisiana to Alabama as its services played an integral role there.

Other than the storm, the company is set to gain from the rebounding economy and demand in its end markets coupled with its cost-saving efforts. The expansion in the global industrial activity is likely to contribute to Caterpillar’s top- line in the coming quarters. In North America, demand from both residential and non-residential construction will bolster sales for its construction equipment.

While the company is famous for its bulldozers and excavators, it also expanded its energy and transportation division with the acquisition of Weir Group’soil and natural gas division Weir Oil & Gas. This buyout will allow Caterpillar to provide an expanded suite of offerings and services, which will be one of the broadest portfolios in the well-service industry. This takeover will boost the segment’s top-line performance.
The stock carries a Zacks Rank of 3, currently. The Zacks Consensus Estimate for the current-year earnings and sales is pegged at 53.66% and 21.73% growth, respectively.

The Home Depot, Inc. HD: Natural disasters have a positive impact on the company’s sales owing to the need to fix broken homes. Thus the company is likely to see a jump in revenues in the quarters ahead.
Other than this, the world’s largest home-improvement specialty retailer is in a sweet spot owing to continued strong demand for home-improvement projects as well as the ongoing investments in the space.

The company is also reaping significant benefits from the execution of the “One Home Depot” investment plan.  It  focuses on widening its supply-chain facilities, augmenting investments in technology and enhancing the digital experience.

Its efficient delivery network goes well with its customers. Its recently-launched interconnected facilities like the mixed-cart selling from store capability and in-the-tool rental facilities are likely to enrich the experience of both Pro (professional) and DIY (Do-It-Yourself) customer categories.
A favorable housing market, aided by a slew of accelerated home-buying activities, has been driving demand for the home-improvement goods for a while now. Home Depot is a key beneficiary of this trend as the leading retailer in the home-improvement space. The stock currently carries a Zacks Rank of 3.


Infrastructure Stock Boom to Sweep America

A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.

The only question is “Will you get into the right stocks early when their growth potential is greatest?”

Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.

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Caterpillar Inc. (CAT): Free Stock Analysis Report

The Home Depot, Inc. (HD): Free Stock Analysis Report

Masco Corporation (MAS): Free Stock Analysis Report

CarMax, Inc. (KMX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.