|Written by Rob Goldman
Weather Creates Opportunity
In some circles it is considered a taboo subject. However, there is no mistaking it. When major weather events or events in general strike, they have an impact on the global economy and stocks, and usually present a specific buying opportunity in the stock market.
Almost exactly 20 years ago, Hurricane Andrew, a Category 5 hurricane, slammed into Florida essentially leveling small towns such as Homestead and others. I recall the vivid images of the destruction path it left in its wake. It was horrific and sad and was a major reason why certain commodities shot up in price shortly thereafter. Lumber, steel, orange juice and other commodities made a quick and sustained jump higher while Home Depot (NYSE – HD) and Lowe’s (NYSE – LOW) made huge gains as Floridians attempted to rebuild. As the cost estimates began to roll in however, the insurance stocks dropped sharply.
At the time, Hurricane Andrew was the costliest hurricane ever in the U.S., with a price tag if over $26 billion.
Seven years ago tomorrow is the anniversary of Hurricane Katrina hitting New Orleans. The fallout from the mess there is legendary, as is the cost. It is referred to as the costliest natural disaster in U.S. history, with an estimate expense of $81 billion, and the deadliest, with over 1,800 lives lost.
Follow Your Instincts
Oil prices shot up as did many other commodities related to construction, while thousands of new cars were later sold at auction to buyers not fearing the hurricane damage.
Four years ago this September, Hurricane Ike ravaged southeastern Texas. I remember it like it was yesterday as my sister, who was pregnant and due any day, had to flee Houston, only to give birth 2 days later and have no home to go to with power for nearly 10 days. Ike was the second costliest natural disaster.
How ironic is it that tomorrow, 7 years to the day, it looks like another hurricane will pack a wallop in the Gulf Coast, and Louisiana in particular? Moreover, aside from helping potential victims rebuild after the fact through prayer, donations and physical help, what should investors expect and what action should they take?
Oil prices could see a spike if rigs are damaged or offline for a meaningful period of time. Commodity prices, especially those related to construction will rise. Maritime transportation of goods up-and-down the Mississippi, which has already been problematic due to the drought upstream, may be delayed and perishable items go unused and wasted. Insurance companies may take it on the chin, depending upon the level of damage.
Perhaps selling property and casualty insurers with exposure to the region should be sold, while oil E&P providers with no exposure to the region, such as Double Eagle Petroleum (NASDAQ – DBLE - $3.86), should be bought. Abraxas Petroleum (NASDAQ – ABAX - $2.04), which has assets in the Rocky Mountains, the Permian Basin and Alberta, Canada may also be a good play, but it has a very small amount of exposure to the Gulf. Buying construction services firms or residential production providers, along with regional consumer discretionary firms are a good bet. Goldfields (NYSE –GV -$2.27) is a heavy construction firm in the region, with expertise in transmission lines, concrete foundations, etc.
There are usually a number of plays that emerge after the damage is assessed. While we believe that these stocks may be solid beneficiaries of a hurricane, it is wise to monitor the industry closely as well.
Until next week…
Analyst: Robert Goldman
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This report or newsletter does not take into account the investment objectives, financial situation, or particular needs of any particular person. This report or newsletter does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com.