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Sandy’s Impact: Three Winning and Losing Sectors

1 November 2012 in Trading Ideas

With millions of residents still drying out – or worse – in the wake of Hurricane Sandy’s trail of wreckage earlier this week, the personal and economic costs have been devastating: more than 70 deaths in US and Canada, a loss of power for at least 8 million people and the flooding of lower Manhattan.

For investors, however, it was a weekend of anticipation plus two days of market closures to consider what effect the storm would have on the economy and financial markets in the next few weeks and months. While the correct answer, as usual, is “nobody knows,” it’s plausible that certain sectors and industries could receive at least temporary boosts or hits to their bottom line.

Here’s how it might break down:

 Winners:

  • Home improvement stores.  While many sectors just received a jolt to their customer demand, there will be an offset by sectors that are providing crucial products and services. As PIMCO co-Chief Investment Officer Mohamed El-Arian noted in a recent article on CNBC.com, these will be concentrated in segments that will supply goods and services for the reconstruction of homes, business roads and infrastructure. Twenty stocks of companies focused on home renovating and decorating are collected in the Home Improvement motif, which is up 4.4% in the past month. The S&P 500 is down 1.2% during that timeframe.
  • Food stores. Local grocers in the Northeast may suffer from lower demand in the near term as regular customers wait for transportation routes to return to normal. But a Citi report earlier this week suggested that retailers focused on consumer staples likely benefited from traffic surges before the storm as customers seek emergency supplies, food and home repair items.
  • Well-placed retailers. Or should we call them lucky. In Citi’s report of retail sales impact, the sector has 24% of its stores in what the bank calls the “negatively impacted area.” Well below that rate are Pleasanton, Calif.-based Ross Stores (ROST), with 14%, and luxury retailer Coach (COH), with 12%, which has a heavy presence outside the US. With Citi expecting a 2%-3% hit to monthly same-store sales as a result of Sandy, certain retail stocks may look comparatively better.

Losers:

  • Discretionary retailers.  Citi’s report noted, this is possibly not the time to bet on an uptick in upscale apparel or accessory retailers, given the combination of store closures and severely depressed traffic levels. The investment bank expected a traffic hit of more than 40% at these stores. In addition, retailers with a better-than-average amount of stores above Citi’s 24% average rate could show subpar monthly and quarterly sales. Two of those companies, Aeropostale (AEO) and Abercrombie & Fitch (ANF) are components of the Hot Retail motif, which is down 0.1% for the past month.
  • Insurers. It’s time to pay up. Consider, for starters, the business interruption insurance from retailers, airlines, and other transportation companies. An Insurance Information Institute told the Financial Times in an Oct. 30 article that she expected the storm to be one of the 10 most costly insured catastrophes in US history.
  • Facebook employees and Google. Sandy delayed the possible entry into millionaire-hood for Facebook workers who had to wait an extra two(!) days to finally sell their post-IPO shares. For many of them, it’s likely been an agonizing summer and fall as Facebook shares have dropped about 44% from their IPO price. To add insult to injury, the stock fell nearly 3% when traders returned on Wednesday (Or was it because of a Facebook employee dump?). For Google (GOOG), the Storm Gods seemed to conspire against the company’s huge announcement of its new Nexus line of devices, which was scheduled as a public volley to Apple’s iPad mini announcement last week.
 
For an investment to consider in the storm’s aftermath, check out our new Rebuilding After Sandy motif.
 
Performance data was as of 11/1/2012. Performance data and returns are based on past and are not representative of results an investor could expect to achieve. The 1-month and 3-month return shows how a particular benchmark motif could have performed over a stated period of time. Returns of individual motifs do not take into consideration certain fees and/or commissions, corporate actions, or other activity that can affect the return an investor could expect to incur. The performance results attempt to follow a standardized and consistent methodology for performance reporting. While we believe the performance data is gathered from reliable sources, the information that generates performance results uses historical data that we believe to accurate but has not been validated and may contain errors in pricing or other conditions. Reference to return of index does not imply its performance is comparable to a motif, but rather serves to provide a reference point.  For detailed information on how we calculate returns, please visit www.motifinvesting.com.