Lots of investors are wondering why they didn’t have the foresight to buy Home Depot last week, prior to the arrival of hurricane/tropical storm Sandy, which just devastated the northeast. After all, the forecast was pretty clear that the storm would hit exactly where it did. But that foresight was most likely missing during prior storms also. So is it worth it to buy stocks after the storm that could benefit from the clean-up? We looked at ten stocks that could benefit. This sample “portfolio” was not put together or engineered to have extraordinary out performance using 20/20 hindsight. We simply found ten companies that seemed like they would benefit from the aftermath of a storm, and then tested the results.
The sample portfolio is made up the following companies:
1. American Woodmark – AMWD – kitchen cabinets and vanities.
2. Eagle Materials – EXP – wallboard
3. Masco – MAS – home improvement and building products
4. Home Depot – HD – home improvement retailer
5. Louisiana Pacific – LPX – wood products
6. Waste Management – WM – solid waste disposal
7. Exxon – XOM – oil
8. Chicago Bridge and Iron – CBI – engineering, procurement and construction company
9. Fluor – FLR – engineering and project management services
10. CAT – earth moving equipment
Now the above list is not the best possible list of stocks that might benefit from a hurricane that creates major damage. But I tried to put together a somewhat diversified group of companies that might benefit in some manner. And also, this sample portfolio was put together on short notice (and I am NOT recommending this portfolio, this is for learning purposes only).
Below is the sample of hurricanes that I looked at and the damage estimates (http://www.wunderground.com/hurricane/damage.asp)
1. Isabel – 9/18/03 – $6b in damages – came ashore in NC
2. Charley – 8/13/04 – $16b in damages – case ashore in Florida (this storm was followed by Frances, Ivan and Jeane. Combined, those three additional storms created $38b in damages).
3. Katrina – 8/25/05 – $105b in damages – came ashore in Florida but did most of its damage when it got to Louisiana on 8/29/05
4. Ike – 9/13/08 – $28b in damages – Texas
5. Irene – 8/27/11 – $16b in damages – NC
To measure the performance of the stocks post hurricane, I am using the first Monday on or after the storm as the purchase date, and then measuring total return results (via Yahoo Finance) 4, 8, 13, 26 and 39 weeks out.
Let’s look at Home Depot. After all, if there ever was a stock that should benefit from a hurricane it would be Home Depot.
It appears buying Home Depot the Monday after the storm, based on this limited sample, did outperform the SPY during most of the above time periods. Only after Katrina, was that not true.
Below are the results of taking the average return of the 10 stocks in our sample portfolio versus the SPY:
Except for Ike, the average portfolio seems to have outperformed the SPY during the majority of the time periods. As far as the under performance after Ike, that probably has to due with the fact that Ike hit the USA on 9/13/08, when the market was clobbered as much as the areas that Ike hit. Building and building related stocks like the ones that make up our sample portfolio under performed during that period.
Based on this very unscientific portfolio and a very small sample size, it appears there would have been some benefit to buying a portfolio of these type of companies after the hurricane, except after Ike when the market was dramatically falling.
**Please note that within the portfolio there was some significant under performance by individual stocks even during all of the periods.
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