Hurricane Florence has wreaked havoc on the coast of the Carolinas where conditions are fast deteriorating. Florence, the first major hurricane to threaten the eastern United States this year, has now downgraded to a Category 1 storm. Still, it may lead to catastrophic flooding, life-threatening storm surge and destructive winds in Southeast U.S. over the weekend and into early next week.
The damage caused by Hurricane Florence is unlikely to be like last year’s Harvey and Irma but could impact U.S. data for months. AccuWeather estimates that Hurricane Florence will cause $30-$60 billion in economic impact and damage (read: How to Prepare for Hurricane Season With ETFs & Stocks).
If we go by history, the stock market generally performs well in the aftermath of hurricanes. Considering the aftermath of the 15 costliest U.S. hurricanes, the data from CFRA, a Wall Street research firm, shows that the S&P 500 index posted a median drop of 0.2% a month after the hurricanes formed but rallied thereafter. The index climbed 3.9% three months later and then 7.8% six months later.
While most of the sectors like transport, insurers and retailers took a beating from the hurricane, industries like building supplies, home improvement, car rentals and gasoline benefit and drive the rally in the market. That said, home improvement retailers Home Depot (HD - Free Report) and Lowe’s (LOW - Free Report) jumped to an all-time high this week, gaining 1.2% and 2.9%, respectively. Building products company Masco (MAS - Free Report) , which benefits from rebuilding, rose 1.3% while used vehicles retailer Carmax (KMX - Free Report) is up 3% this week.
Meanwhile, shares of roofing, insulation and generator companies also gained. Beacon Roofing Supply (BECN - Free Report) gained 2.4% this week while generator maker Generac Holdings (GNRC - Free Report) touched the highest since 2014 and is up 3.5% this week. Car rental companies like Hertz Global Holdings (HTZ - Free Report) and Avis Budget Group (CAR - Free Report) are up 0.3% and 6.2%, respectively (read: US August Auto Sales Encouraging: ETF & Stocks in Focus).
The Florence storm could disrupt energy production infrastructure, threatening supply and pushing up the oil and gasoline price. As per Reuters, U.S. motorists are feeling the effect of Hurricane Florence as gas prices at the pump have risen this week. Gas prices in South Carolina have climbed by about 8 cents to $2.585 a gallon on Sep 11 from a week earlier, according to AAA. North Carolina stations reported that they are running out of fuel supplies, according to retail tracking service GasBuddy.
Since North Carolina is the largest tobacco growing states in the United States, Hurricane Florence could damage the crops that have already been planted and could delay the further plantation. According to Matthew Vann, a tobacco specialist at North Carolina State University, crop losses could reach as high as $300 million, “assuming a 100% loss of what’s still in the field.” As such, the devastation could drive tobacco prices higher and impact prices of stocks like Altria Group (MO), Philip Morris International (PM), British American Tobacco (BTI) and Vector Group (VGR).
Given this, investors could tap the wide array of stocks in a basket form via ETFs. We have highlighted below those that are expected to gain in the aftermath of Hurricane Florence.
United States Gasoline ETF (UGA - Free Report)
This ETF provides investors with exposure to front-month gasoline futures, tracking RBOB gasoline for delivery to the New York harbor, which is traded on NYMEX. The ETF is illiquid with daily trading volume of about 15,000, suggesting that investors have to pay extra beyond the annual fee of 75 bps per year. The fund has managed assets of $45.5 million so far and surged 3.1% over the past week.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
This fund provides exposure to 30 companies that are primarily engaged in providing construction and related engineering services for building and remodeling residential properties, commercial or industrial buildings, or working on large-scale infrastructure projects by tracking the Dynamic Building & Construction Intellidex Index. With AUM of $205.5 million, it trades in a moderate volume of around 47,000 shares a day on average, while charges 58 bps in annual fees. The product has shed 0.6% in a week and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Renting Preferred Over Buying: Industrial ETFs in Focus).
Materials Select Sector SPDR Fund (XLB - Free Report)
This product follows the Materials Select Sector Index and offers exposure to 24 companies in the chemical, construction material, containers and packaging, metals and mining, and paper and forest products industries. It has amassed $4.6 billion in its asset base while trades in heavy average daily volume of 5.8 million shares. The fund charges 13 bps in annual fees and has added 0.1% in a week. It has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
AdvisorShares VICE ETF (ACT - Free Report)
This ETF seeks concentrated exposure to U.S. exchange listed equity securities of alcohol and tobacco companies that historically have exhibited consistent, steady growth with durable moat advantages. Holding 36 stocks in its basket, North American firms account for 76.6% share, while Latin America, the United Kingdom and many others receive single-digit allocation each. The fund has 27% exposure to tobacco companies. It is an actively managed fund and has attracted $12.6 million in AUM since its debut in mid-December. The ETF has 0.75% in expense ratio and trades in lower average daily volume of nearly 5,000 shares. It is up 1.3% in a week (read: ETFs & Stocks to Tap Marijuana Boom).
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