If history teaches us a lesson, stocks in home improvement retailers are poised to jump once markets reopen following the worst of Hurricane Sandy’s damage.
The effect is likely to be short-lived, but at least three previous cases suggest natural disasters of this magnitude provide a short-term boost to retailers who sell the supplies and equipment homeowners need to prepare for inclement weather and repair damages.
It was difficult to gauge the pre-storm impact on home-renovation retail stocks Monday, as the New York Stock Exchange was shut down because of the hurricane. But in the case of three of the worst hurricanes in recent history – Katrina, Ike and Irene – share prices for home-renovation retailers sometimes jumped more than 10 per cent within a few days of the hurricane’s formation, declining a day or two later.
Home Depot Inc. rose almost 8 per cent during last year’s Hurricane Irene. Lowes Cos.’ stock rose just more than 11 per cent eight days into Hurricane Ike in 2008 – but, illustrating the short-term nature of these jumps, fell 8 per cent just a day later.
The quick bump in share price might be a worthwhile opportunity for investors looking to jump onto one of these stocks in the very short term. But the irregularity of the price jump, both in terms of size and duration, means there is no guarantee you will make the quick buck you’re looking for.
While the lead-up to a hurricane should theoretically boost sales and thus company value, both Lowes and Home Depot saw price dips Friday before markets closed.
Analysts were careful to note on Monday that while a storm-related bump in share prices can be seen during hurricanes, it’s too short-term to affect their valuations of the retailers.
“Weather always tends to be a factor for these companies,” said Robin Diedrich, an analyst with Edward D. Jones & Co. Because of the long-term views necessary to generate forecasts, she said, the short-term blip doesn’t play into her valuations. “Weather, in general, tends not to be something we focus too much on.”
“We’ll see a short term spike … with the sale of some products as consumers get ready to deal with the storm and prevent the damage, and then to fix whatever damage may have happened,” said Canaccord Genuity analyst Derek Dley.
But Mr. Dley, who covers Canadian companies Rona Inc. and Canadian Tire Corp., said the hurricane’s impact was too short-lived to affect his numbers. Because Canada won’t be as badly affected as the U.S., the possibility of a spike here is even smaller.