Login to your account

Lost your password?

How to Play the Aftermath of Hurricane Sandy

Markets are open again after a two-day break as Hurricane Sandy passed through the northeast.

Damage estimates from the storm are still preliminary, but the storm caused damage along the coast from North Carolina to Massachusetts, and has caused power outages as far inland as Michigan.

It's difficult to tell what the impact on insurers will be, but shares of home-improvement retailers Lowe's Cos. (LOW) and Home Depot (HD) are both up more than 2.5% today. Another big mover is Generac Holdings (GNRC). The company makes generators and other engine-powered products.

Generac reported earnings this morning, beating analysts' estimates by 3 cents per share on inline revenues. The company also raised its guidance for fiscal 2012 above the mean estimate. The stock is up more than 17% today on the news.

It is likely to take days if not weeks to restore power to the millions of people who are currently with out it. Sandy is just the latest in a series of storms to cause significant, long-lasting power outages for a large swath of the country. This summer's derecho and Hurricane Irene last year both caused widespread outages.

Whether or not these storms are actually becoming more common, the perception is that they are. In our increasingly plugged-in lives, being without power for days is a significant hardship for individuals and businesses alike. I'd expect generator sales to not only spike in the short term as people look to get some electricity back as soon as possible, but also to rise over the long term as people try to be better prepared for these kinds of events in the future.

It's probably too late to participate in today's rally, but with a price-to-earnings ratio of 6.5, the stock is still attractively valued. A May $35 covered call on the stock costs $32.05 today, compared to the stock's current price of $33.49, giving it 8.8% downside protection. If the stock closes above $35 at May expiration, this trade will return 14.6%.

A shorter-term way to play GNRC could a December bull-put credit spread between $30 and $25 yeilds a credit of 50 cents per share for an 11.11% target return. This position will return a full profit so long as the stock is above $30 at December expiration.

 

Bobby Raines is the Managing Editor of the Market Intelligence Center. He has degrees in Mass Communications and History from Emory & Henry College. Bobby worked at a mid-sized daily newspaper before making a switch to covering the financial industry full time in the years leading up to the financial crisis. He has been a member of the Fresh Brewed Media team since 2011 and has served as a writer and analyst. You can write to him at braines@marketintelligencecenter.com.

Bobby Raines

Bobby Raines is the Managing Editor of the Market Intelligence Center. He has degrees in Mass Communications and History from Emory & Henry College. Bobby worked at a mid-sized daily newspaper before making a switch to covering the financial industry full time in the years leading up to the financial crisis. He has been a member of the Fresh Brewed Media team since 2011 and has served as a writer and analyst. You can write to him at braines@marketintelligencecenter.com or follow him on Twitter: @BRatMICenter.