Sectors that Could Benefit from Severe Weather Events

Fact checked by Katharine BeerFact checked by Katharine Beer

When storms bear down on areas with dense populations, the impact can be severe. But while storms and other severe weather events can cause millions of dollars worth of damage to individuals and companies, some businesses enjoy benefits. For example, engineering firms, home improvement companies, and generator manufacturers often see revenue increases as a direct result of weather events.

While storms rarely result in long-term financial improvements, and companies shouldn’t count on them to improve long-term revenue, a business increase during storm season can be enough to shift investor sentiment and cause a rally in stock values.

Key Takeaways

• Hurricane season puts a variety of businesses and industries at risk if they fall in the path of the storm.
• While a major storm devastates many individuals and companies, a select group of businesses can thrive amid such difficult circumstances.
• Home improvement companies, such as Home Depot and Lowe’s, tend to see strong sales in the days and weeks ahead of and just after a storm.
• Generator and battery manufacturers tend to see a rise in sales as consumers seek to prepare their homes for the incoming storms.
• Companies that test and treat water to make sure it’s drinkable, as well as engineering firms that help rebuild, tend to see improved sales in the aftermath of a bad storm.

Home Improvement Companies

The Home Depot (HD), Lowe’s (LOW), and Walmart (WMT) are three companies that may see an increase in business as a consequence of a severe weather event.

These big-box retailers are generally considered to be top picks to buy ahead of a storm for the potential increase in stock value, as they can still see an increase in sales even if a weather event does not have a significant impact. That’s because they sell supplies that people need before a storm, including batteries, snow shovels, generators, and various building materials to prepare for the storm.

These companies may see an additional increase in sales post-storm if the damage is significant as consumers purchase materials needed to clean up and rebuild.

Important

The Atlantic hurricane season runs from June 1 through November 30, with the worst stretch occurring in August through late October. 

Generator Companies

If a storm results in significant power losses, demand for generators increases. Generator manufacturers like Generac Holdings (GNRC) usually benefit. It’s one of the largest publicly traded manufacturers of home backup generators and the first company to engineer affordable home standby generators. The company provides portable, residential, commercial, and industrial generators in high demand if a weather event results in power outages.

Engineering Companies

Engineering companies often benefit from rebuilding efforts after major storms. These companies include AECOM (ACM) and Fluor (FLR). Both of them are major government contractors, which means they can potentially benefit from federal disaster relief.

Fluor also has a diverse business, including engineering, procurement, construction, fabrication and modularization, commissioning and maintenance, and project management services, all of which may see additional revenue following major storms. AECOM’s business is equally diverse, providing services for projects, including highways, bridges, government and commercial buildings, water facilities, and power transmission and distribution.

$1.2 trillion

The total amount of funding allocated by the Infrastructure Investment and Jobs Act, which was signed by President Joe Biden on Nov. 15, 2021. The bill commits more than $50 billion in funding toward climate change by providing protection against weather-related incidents like droughts and floods, as well as wildfires.

Battery Makers

Battery sales usually increase before storms are expected as consumers stock up on batteries to power their flashlights and radios. Energizer Holdings (ENR), with its rabbit mascot that keeps on going, may also keep on rising following such events.

When you think of household batteries, Panasonic and Duracell may come to mind. Berkshire Hathaway acquired battery company Duracell from Proctor & Gamble (PG) in 2016 by buying all remaining shares.

Water Solution Companies

Clean water shortages can occur after a major storm hits, especially when floodwater affects public drinking water. Companies that can test and treat water, as well as transport it, are needed and are often contracted by the government to help in these cases. One of the leaders in the area of water treatment is Xylem (XYL), making it a company to watch during the storm season.

Primo Water (PRMW) is a leading provider of water dispensers, purified bottled water, and self-service refill drinking water in the U.S. and Canada. The company’s extensive distribution network allows it to quickly provide clean drinking water to affected areas during water shortages caused by storms or other disasters.

Property Casualty Insurers

Major weather events, such as hurricanes, tornadoes, and floods, can have a significant impact on the insurance industry, which include companies like Allstate (ALL), Progressive (PGR), Travelers (TRV), and Chubb (CB). After a major event, if a company experiences a high number of claims or pays out substantial amounts in damages, its profitability may suffer. This, in turn, can lead to a decline in the company’s stock price, as investors may perceive the company as being at greater risk or less financially stable.

However in the aftermath of a severe weather event, the demand for insurance typically increases as individuals and businesses seek to protect themselves from future losses. This surge in demand is often driven by a heightened awareness of the risks associated with natural disasters and a desire to mitigate potential financial losses in the event of another catastrophe. As the demand for insurance rises, insurance companies often respond by increasing their rates, and potentially long-term growth.

Insurance companies today are often well-prepared for severe weather events and have effective risk management strategies in place (such as reinsurance) that allow them to weather the storm successfully. Ultimately, the impact of weather events on insurance company stocks will depend on a complex interplay of factors, including the company’s overall financial health, its risk exposure, and its ability to adapt to changing market conditions.

How Do Natural Disasters Affect the Economy?

In the short term, natural disasters can cause significant economic disruption. Damaged infrastructure, business closures, and displaced residents can lead to reduced economic output, higher unemployment, and decreased consumer spending. However, the severity of the impact depends on factors such as the scale of the disaster, the region affected, and the state of the economy before the event.

While the immediate impact of natural disasters is typically negative, there can be some positive economic effects in the medium to long term. Reconstruction efforts can stimulate the construction industry and create jobs. Upgraded infrastructure can improve productivity and efficiency while buffeting against future disasters. Insurance payouts and government aid can provide a temporary boost to consumer spending. However, these positive effects do not negate the overall economic damage caused by disasters.

Which Industries or Sectors Are Most Sensitive to Natural Disasters?

Industries that are directly exposed to the physical impacts of natural disasters, such as insurance, energy, and transportation, are often the most vulnerable. Insurance companies face higher claims and payouts, energy companies may experience production disruptions, and transportation networks can suffer damage. Other sectors, like retail and tourism, can also be affected if the disaster occurs in a key market or destination.

Which Sectors Are Most Resilient to Natural Disasters?

Some sectors may see increased demand following a natural disaster. Construction and building materials companies often benefit from the need to rebuild damaged properties and infrastructure. Generators and backup power providers may see a surge in sales. Discount retailers can also begin to attract more cost-conscious consumers. However, the overall market impact depends on the specific circumstances of each disaster.

The Bottom Line

Every cloud has a silver lining, and so too do storm clouds that cause hurricanes and flooding. While natural disasters can be costly for individuals and larger regions, they can also be a boon to investors in certain industries or sectors that are well-positioned to profit from such calamities. Battery and generator manufacturers and engineering and water works services, among others, are often examples of these types of companies.

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