Investing in the Eye of Hurricane Season: Natural Disaster Stock Plays
It’s the heart of Hurricane season and we aren’t talking about sunburns on the beach from too many drinks. That was when we were island hopping on Labor Day weekend.
The peak of the Atlantic hurricane season is September 10th, with most activity occurring between mid-August and mid-October. The National Oceanic and Atmospheric Administration (NOAA) has categorized the 2023 Atlantic hurricane season to be “above normal.” NOAA forecasters expect 14 to 21 named storms. Of those, it predicts 6 to 11 could become hurricanes, of which two to five could become major hurricanes.
Most recent to make landfall was Hurricane Idalia, which slammed parts of Florida and the Carolinas. Next on watch is Hurricane Lee. It’s currently strengthening and categorized as a 3, leading us to believe its first name might be Bruce. Fingers crossed it doesn’t make landfall. No one wants to be Kung Fu fighting.
While we don’t not encourage you to hop in your car and capture the ultimate storm chase, go viral and make millions, we just think investing in the right stocks affected by adverse weather is easier, with a better chance of survival. Let’s look at where to put and not put your money as we ride out the storm.
During times of devastation and severe weather there are companies impacted positively due to their association with the assistance they provide, to those affected, by the damage from these storms. Here are some to keep eyes on during the next storm watch:
Disaster Recovery
We all have that one friend who walks in the door after we’ve experienced a bad break up who tells us to get it together, makes you take a shower, picks out your outfit for the night and gets you back in the game. They are the one we count on when we are a “hot mess express”.
Clean Harbors (CLH) is that friend when it comes to disaster recovery. They specialize in providing a wide range of hazardous waste management, environmental remediation, industrial cleaning, and emergency response services. Last month the company delivered strong Q2 earnings results and is up ~45% YTD.
If you’re looking for a smaller cap, you may want to consider Matrix Service Company (MTRX) they may not be the “kick you in the bum, jack of all trades” friend, but they’re the one you can always count on in one particular area of life, like always being the reliable DD, no matter how “goodie two-shoes” annoying they usually are.
During normal business hours, Matrix provides maintenance and construction services focused on industrial, oil/gas, and energy. When a storm hits, they are called on to help repair offshore oil rigs, maintain above ground storage tanks for refineries or perform renovation work on generators. The company also reported positive Q2 earnings on Monday and has traded ~34% YTD.
Home Improvement
If we don’t mention the most obvious, do we lose points? Better safe than sorry. Home Depot (HD) is the home improvement store for disaster recovery that has the “do-it-yourself” customer base along with commercial businesses and boasts a volunteer force that supports communities who will be or have experienced a natural disaster. Most recent, HD mobilized recovery efforts for those who encountered the wrath of Idalia. While we can’t swing a hammer, it’s good to know where to go if we ever need to try.
On the flip side, others are negatively impacted due to their reliance on good weather, to increase profitability.
Cruise Lines
Don’t quote us but if this was Family Feud 100 people of the 100 people surveyed would pick “Boat” for the last place they would want to be in a hurricane. If they didn’t then we hope, they said “Ocean”. Either way, Cruise Lines cover both correct answers of where not to be in a hurricane. Despite hurricane season, cruise line stocks have been making a comeback since the pandemic, however as inflation reduces consumer discretionary spending, it is anticipated this space will normalize.
Royal Caribbean Cruises (RCL) is one of the world’s largest cruise lines. Headquartered in Miami, FL, it has established a strong presence in the global cruise industry. RCL recently announced its multi-year partnership with Miami CF. The cruise line company will become the Club’s main partner and official vacation partner. The company has traded up ~103% YTD.
Another operator with a similar market cap that is trading ~84% lower at ~$15, is Carnival Corporation (CCL). The stock had a record month back in June up 68% citing strong travel demand and most recently celebrated the 50th anniversary of the Bahamas independence with a Junkanoo experience aboard Mardi Gras that was docked in Nassau. The stock is up ~92% YTD.
Insurance Companies
Natural disasters are one of life’s events that make you feel validated for making a monthly insurance payment that almost always feels like lighting money on fire. Thankfully when catastrophe strikes, homeowners can reap the benefits of those monthly payments until of course, the insurance company finds its loophole to still not pay you. Hard to believe sometimes but insurance companies do get hurt as payouts to customers are unavoidable during natural disasters.
Most recently, HCI Group, Inc. (HCI) released a statement regarding the impact of Hurricane Idalia. The company cited pre-tax gross loss from Hurricane Idalia to be within the reinsurance retention limits. The stock has been up ~30% YTD. Some small cap names to watch include Universal Insurance (UVE) which is up ~22% YTD and Heritage Insurance Holdings (HRTG) also up ~148% YTD.
One thing we’ve learned over time about natural disasters is that there are always those who walk the fine line between risk taker and stupid. Sometimes no matter how much notice you give people, there will always be those who don’t heed the warning signs and instead miss out on the chance to get out of nature’s path.
Avoid looking as stupid as a news reporter in the middle of a storm. Be more of a risk taker and less of an idiot – prepare your portfolio ahead of time. Dig into some of these industries to find the next natural disaster play.
