Generac has the Power

By 2012-07-09 00:00:10 - July 9, 2012 | Tickers: BGG, GNRC, HP, BWC | 0 Comments

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When you need power -- and when you want electricity again – I've learned no price is too steep to pay. It's why I'm seriously considering a generator ... and investing in companies that make them, like Generac Holdings (NYSE: GNRC).

A week after a powerful derecho spanked a swath of land stretching from the Midwest to the East Coast, there are still those without power. Ours was recently restored, but not before we lost an entire freezer and fridge worth of food.  With record-breaking heat, it hasn't been easy.

Even worse, the sound from our neighbors' generators has been driving my wife up a wall. I'm easy, I can be bought off with ice cubes whereas she sleeps like a baby ... you know, up every few hours, crying and screaming.

So my attention turns to Generac Holdings for the wide variety of reasons, but chiefly that they have the power – like Greyskull, but with more iPads and less steroids.

For lucky Fools who didn't share my fate, consider that Generac products dominate Home Depot's (NYSE: HP) top selling generators list. And it appears I'm not the only one running out to pick up backup power supplies.

The stores have been cleaned out for almost a 2-hour radius from Baltimore. And they aren't cheap either. Small generators start at $300-$400 and run into the $2k-$3k range, depending upon the wattage and run time.

These portable generators can power a small appliance or an entire house or company, depending upon the fuel, the wattage and the generator size. A storm like this could wipe out a year's supply of inventory across a dozen states. Those sales and the restocking that follows them sounds like profits, if you can hear it over the racket of the neighbors' generators.  

A Profitable Storm on the Horizon

Unlike the derecho that struck with little warning, GNRC investors will have plenty of time before this storm-related bonus hits the quarterly figures. The recent special dividend has weighed the stock down, without too much upward price movement caused by storm sales. Currently the price sits around $22.57, down just over 26% for the year.

And that's a good thing for investors who like to pick up a bargain.

While one of Generac's residential competitors like Briggs & Stratton (NYSE: BGG) will also see a positive boost from consumers rushing out to buy generators, you can't look at the segment without seeing that a commercial and government supplier like Babcock & Wilcox Co (NYSE: BWC) could also see an increase as municipalities rush to put backup systems in place.

There have been a number of Fools who've taken a look at GNRC lately. Sean Williams gave us his take on the company's recent special dividend in Why Generac Holdings Charged Higher, and Seth Jayson educated readers to be on the lookout for "positive inventory divergence" in A Hidden Reason Generac Holdings' Future Looks Bright.

In short, I like a company that pays a dividend for the discipline it requires, and companies that have inventory levels under control and growing in the right ways. Generac has both.

I imagine the immediate storm-related trend will die down within a few weeks as stores re-supply and return to normal. More important is what a storm or weather event like this does – it raises the awareness of life-sustaining products to millions of consumers who would have never thought they needed them.

Over the longer term, more and more consumers will consider these necessary home systems – like fire extinguishers. They may wait and buy later, but they will buy soon enough. And that's a good thing for a company like Generac Holdings.

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