2 Disaster Stocks That Could Rally 10%-15% by Year-End
Mother Nature can be a cruel matriarch.
Witness the horrific natural disaster in Moore, Okla., where a two-mile wide EF-5 tornado ripped through the city killing at least 24 people and leaving hundreds homeless. This devastating event, along with last year's nearly unthinkable destruction wrought by Superstorm Sandy, reminds us all that despite our unique ability to shape the world we live in, humans really are largely at nature's mercy.
Knowing that disasters of all types can, and likely will, occur at some point, to many means you need to act now to protect yourself and your loved ones. Moreover, from an investing and trading perspective, the increased awareness of the need for preparedness could mean opportunity in the companies that sell the equipment that allow us to make it through such tragedies.
Here are two stocks that fit the bill:
Generac Holdings (NYSE: GNRC)
Whenever a huge storm, hurricane, tornado or earthquake strikes, the first thing to go down is the power grid. Widespread power outages were rampant during Superstorm Sandy, and many residents on the East Coast were without power for more than a month.
The decimation of the power grid during a natural disaster is understandable, but even during times of high usage, such as in the hot summer months, much of the nation's aging power grid is under heavy stress.
If the grid gets compromised and goes down, the only solution is to have a backup generator to create your own power, and that's the province of Generac Holdings. This company makes a variety of high-quality residential and industrial generators.
The chart here of GNRC shows the huge share price spike in late October, which not coincidentally, was immediately following Superstorm Sandy.
I suspect that the tornado in Moore, Okla., will be one of many exogenous events that make it clear to many residential and business owners that it's essential to have some type of backup power generation system. That could mean more upside for GNRC going forward.
Recommended Trade Setup:
-- Buy GNRC at the market price
-- Set stop-loss at $34.35, approximately 8% below the current price
-- Set initial price target at $42.94 for a potential 15% gain in six months
Home Depot (NYSE: HD)
When nature takes its toll on residential and commercial structures, there's one store that's at the top of the shopping list when it comes to rebuilding, and that is Home Depot.
The home improvement giant sells the stuff you need to board up your home's windows before a storm, and it sells you the windows, lumber, nails, etc. needed to repair the damage after a storm.
Now, in the case of the Oklahoma tornado, many structures are going to need a complete rebuild. However, those whose homes survived the damage somewhat intact will no-doubt be making multiple pilgrimages to Home Depot.
Fortunately, this company is by no means reliant on natural disasters for its revenue. In fact, Home Depot recently reported an 18% year-over-year surge in first-quarter net income, fueled largely by an improving housing market.
If we see a continued improvement in housing, then we are likely to continue seeing more upside in shares of this Dow component.
Recommended Trade Setup:
-- Buy HD at the market price
-- Set stop-loss at $72.58, approximately 8% below the current price
-- Set initial price target at $86.79 for a potential 10% gain in six months