If you haven’t heard already Hurricane Matthew is approaching the southeast United States and it looks like it’s going to be a big one. As of right now it’s forecast to go right up and parallel to the east coast all the way from southern Florida up to North Carolina. Florida, Georgia, South Carolina, and North Carolina have told people to evacuate from the coast.
I Live near Charleston, South Carolina so this really hits home for me (pun intended). I’m not very happy that it looks like I should be evacuating, but you have to be smart about these storms. They are a seriously big deal. It’s been a long time since the Charleston area has had a major hurricane come through, but that’s all the more reason why everyone needs to be on high alert.
Ok, so we have to evacuate, it sucks, but how can I (and you) benefit from such a storm? Like it or not, there are companies that will profit and there are companies that will be hit hard by this storm. The key is understanding what will happen to what companies and then be ready to act when the time comes for you to take advantage of the situation. How do you do that? You can simply look at what happened during previous similar storms.
First things first, insurance stocks
What happens when storms hit and wreak havoc on an area? They make insurance claims of course. If this storm makes as much damage as they think it will then you should be ready for insurance companies to be in play after the storm.
So how do you play them? Looking at past performance after storms you would find a similar pattern. When Insurance stocks are sold off and taking a beating because of a hurricane and the anticipated losses in claims they would have to pay off it’s going to be a great buying opportunity for us.
Watch the insurance companies take a beating and then get in when everyone is selling off. Why? Because you’re more than likely going to profit when these same companies come back and raise rates on all their customers because of the “heightened risk”. If you can buy when these insurance companies are taking a beating (because of the hurricane) then by all means buy. If you were looking to invest into this sector anyway then you’ll have a great entry point, and if you are looking to trade it should be profitable for you too.
The pure play on power
When hurricanes like Matthew come through they usually leave behind them a lot of people without power. In some areas it can sometimes take weeks for people to get power back. What do people do? They buy generators. Generac Holdings (GNRC) manufactures a wide range of power generation equipment and it hold a 75% market share on home backup generators.
However, knowing this info alone doesn’t mean you’ll profit with an investment. This stock is a small cap and the price can be very volatile at times. From previous history it’s best to play this stock from the long side if there’s a short squeeze. Then at the end of the short squeeze you can profit again on the short side. Because of the timing on these trades it should only be done if you know what you’re doing and really understand what’s going on. Otherwise, go for something else.
Your big box hardware stores
Yes, Lowe’s and Home Depot will benefit from homes needing repairs, and people needing supplies. Past history points to theses stocks gapping up higher because of the hurricanes. However, the stock prices go up quickly and they will usually “fill the gap” back down. An experienced trader would likely profit the most on the short side after the gap up and trade this one on the way down.
Building material and roofing stocks
For obvious reasons these stocks will likely get some action after a hurricane comes through and causes destruction. People are going to need to rebuild and repair damage. Similar to the way Generac would be traded these stocks would do best from the long side if there’s a short squeeze. The experienced trader will profit on the short side once the short squeeze rally is over.
It’s hard to say exactly what type of damage Hurricane Matthew will do to the southeast US, but if you want your portfolio to be ready for this storm then definitely think about these stock plays. I hope the storm just decides to go way out east and leave everyone alone, but if it doesn’t and it does cause some destruction then I’ll be looking to take advantage of it.