Monday, October 29, 2012

Storm Stocks Outperforming the Market Since ... - Yahoo! Finance

When Hurricane Irene swept up the east coast 14 months ago, it was clear that it was going to be a storm for the record books. By the time the skies cleared and Irene had faded, 50 people were dead and more than $15 billion in property damage had been done - and that was just in the United States. (See Related: Hurricane Irene Could Be Among Costliest U.S. Storms)

As bad and as costly as natural disasters are, economists are quick to point out that they tend not to have such a big impact on the overall economy. That's because they are not only short-term events but also because the are offset by a stimulus-like spurt of spending that boosts the books of retailers, landscapers and line crews, while taking a toll on the power companies and airlines. (See Related: Hurricane Sandy: Economic Impact Could Pound Main Street)

Interestingly, industry-watchers say that insurers can be either big winners or losers since they budget for losses, spread and hedge their risk, and actually win if things aren't as bad as expected. In addition, subsequent rate increases on homeowners policies can also serve as a more lagged boon to their bottom lines.

Of course, when the entire population of the east coast is simultaneously looking to stock up on bottled water, batteries, canned food, ice, candles, plywood, generators and chain saws, it will undoubtedly have an impact. However, the lasting value of this spending surge is anything but conclusive, for both the individual industries and stocks in particularly. (See Related: Hurricane Sandy Could Cost $10 Billion a Day)

Part of the reason is simply due to demand shift; meaning money that is spent today cannot be respent tomorrow. If you take a look at a one-month chart of Home Depot (HD), Wal-Mart (WMT) and the S&P 500 from a week before Irene hit until 3 weeks after, you can see in the link here that Wal-Mart gets left behind.

However, when you extend that chart through today you see that it is the S&P 500 that gets left behind; its 25% gain over the past 14-months is dwarfed by the 45% and 85% surges by Wal-Mart and Home Depot. Naturally, it is impossible to say how much, if any, of those gains are directly attributable to Irene.

Out of curiosity, I looked up the third-quarter earnings statements from the two retailers to see if there were any indications or references within their results.

In the case of Home Depot, the answer is unquestionably, Yes. "Our third quarter was driven by strength in our core categories and storm-related sales as well as strong operating performance," said Frank Blake, chairman & CEO in the company's November 2011 announcement in which Home Depot's U.S. comparable store sales were up 3.8%.

Wal-Mart's earnings release made no mention of the hurricane or storm-related buying, focusing instead on the overall condition of the economy on consumer buying habits. The company, and its Sam's Club unit, did reference their corporate donations to the Red Cross, Salvation Army and communities directly affected by the disasters.

Source: http://finance.yahoo.com/blogs/breakout/storm-stocks-outperformed-market-since-hurricane-irene-last-165202776.html

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