The Right Stocks For Hurricane Sandy
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With Hurricane Sandy bearing down on east coast, numerous blogs have resurfaced telling you which stocks to benefit from and which stocks to dump at the market open. Particularly a recent article on Forbes by Christopher Versace, titled "10 Stocks To Benefit From Hurricane Sandy" highlights companies that might not really benefit from the deadly storm. For instance, despite more people snapping pictures on Instagram, Facebook will not benefit from increased ad revenues. It is probable, but I am looking for stocks that are more factual and concrete in revenue expectation: engineering, water treatments, etc. So let's dissect some of these stocks and filter them into a shorter, more viable list of equities that should anticipate increased buying volatility.
Xylem (NYSE: XYL)
With a market cap. of $4.38 billion, this water infrastructure based company provides equipment, testing, control systems and service for water and wastewater applications for residential and commercial markets. They're located in White Plains, New York and will be one of key companies businesses of various industries will flock to in order to measure, monitor, and analyze their water pumps. This company is recognized worldwide as its water solutions are used on the Panama Canal, enabling construction to move forward in that region. They provide a range of innovative analytical instruments and water treatment solutions for environmental hazards.
Depending on the severity of the hurricane, the increase in services offered by Xylem and demand for water pumps is a tangible sale I can stand behind, which should translate to increased revenue. Given that the stock has been trading near its 52 week's lower range of $22.43 - $28.80 since May, it might result in a short pop in the upcoming days with increased volume.
Fluor (NYSE: FLR)
I don't mean to go all Jim Cramer on you, but the construction segment of your portfolio is not fully diversified if it doesn't contain Fluor. This $9.24 billion engineering, construction, and procurement company was present during Hurricane Katrina and BP's devastating Gulf Spill.
When it comes to challenges, Fluor welcomes them. In the remote Gobi Desert of Mongolia, Fluor is currently managing construction of Ivanhoe Mines' $6 billion Oyu Tolgoi copper mine. As the worlds largest copper mine, and the most challenging when it comes to engineering, it is set to begin production in 2013. But instead of focusing on the countless projects Fluor has on its books globally, I want to concentrate on its proficiency in contingency operations and disaster emergency response that is favored by our government.
Think of the company as a one-stop-shop since it can provide the resources needed to accomplish critical activities, including damage and hazard assessment, engineering, design and construction management. In order to assist FEMA in 2005, Fluor mobilized and deployed its rapid response teams of over 500 workers in 3 days and another 1000 workers within 30 days. Again, this is a viable expectation I can rely on to make an investment. The probability that Fluor will be called upon immediately after a severe damage assessment is almost guaranteed.
Home Depot and Lowe’s are weaker buys before major hurricanes and they are a bit subjective in my opinion. The home improvement retailers have barely budged from August 23 to August 30 in 2005 when Hurricane Katrina formed and dissipated with meager stock price gains from both giants. Lowe's already had a hefty 16% rise in the last three months and Home Depot returned 16% in the last 6 months. Both stocks could be retracing and are caught in a cool-off period with Sandy now playing a tug-o-war in between.
From 2 by 4s to flashlights, irrefutably consumers will cling to these retail giants to prepare for emergency disasters. However, due to their sheer market cap sizes, large floats, low beta, and their past lackluster performance during hurricanes, I cannot anticipate solid gains from the stocks unless call options are purchased.
It is noteworthy to mention that a company might experience increase in sales/services, but the stock might stay flat or decline until the results show up in earnings. Opposite can also hold true if Facebook rallies in irrational exuberance and shifts the majority opinion of investors in a few days. Cemex, a Mexican based cement manufacturing company, might rally without delivering a single ton of cement to the damaged sites. Pentair, a Switzerland based water and thermal management company might spike without sending a single engineer to east coast. We have seen this over and over on Wall Street, after which pundits get on television and try to make sense of it all in providing reasons for their bull or bear positions.
The way I see it is that short term traders should care what the majority thinks and does, because essentially they will shift the tide. If the institutional money acts one way and they're wrong, sooner or later the intrinsic value of the stock will catch on, and you will see core earnings bring the stock back to reality. If you're a long term investor, then concentrate on inductive reasoning that anything can happen. Shield yourself from irrational investing that causes bubbles from rumors by focusing on what can factually happen and ask the right questions. Investing in Procter and Gamble to profit short term from a price spike just because they will sell a lot of Duracell batteries isn't logically right. Few questions should be pondered instantly "What is the revenue derived from Duracell versus overall revenue?", "If the stock is trading with a beta of 0.44, which is 66% less volatile than S&P 500, is it worth it?" "Will I need to invest $70,000 before I'm able to make $175 from a quarter basis point rise?" "What kind of a relationship does this multi-national have with the dollar, inverse, parallel? "How is the dollar doing"? I'm getting carried away, but you get the idea.
May God safeguard to all the residents living on East Coast through this worrisome hurricane.
edgarambart30 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.