Home Depot Is Just The Beginning…
“Frank, do you smell smoke?”
My mother-in-law was in the kitchen and something just wasn’t right.
Frank, my father in law walked over to the garage door. He definitely smelled it too. And when he opened the door, he was met with a wall a billowing black smoke.
Immediately, the smoke alarms went off.
There were three kids in the house. Frank bolted upstairs to grab the baby. Patty (my mother-in-law) grabbed her two grandsons in the playroom.
By the time everyone made it out the front door and turned around to look at the house, there were flames shooting out of the roof. Within minutes the entire house was engulfed in flames.
As Patty hugged her tearful grandchildren, she whispered in their ear: “things can be replaced… but people can NEVER be replaced.”
It’s sobering to think of the tragedy that could have happened that day…
The story above really happened to my brother and sister-in-law.
By the time the fire department made it to the house, all they could do was contain the blaze.
In just a few short minutes, my relatives lost everything. Their home, their pictures, the kid’s toys, their cars… everything!
I’m so thankful everyone escaped unhurt. It’s hard not to think what could have happened if Patty didn’t smell smoke when she did.
Today, two years later, the family’s fire is nothing but a horrible memory.
Actually, if you talk to my brother-in-law, he’ll tell you that while tragic, this event turned out to be a good thing for their family.
After all, the insurance company took care of everything including a new house, new furniture, new vehicles and toys for the kids and more. And the entire experience gave them the inspiration to start neighboraid.com — a non-profit group to help families affected by disasters like floods fires, tornadoes etc.
So why am I telling you this story today?
Because tens of thousands families in Texas and Florida are facing a similar situation following Hurricane Harvey and Hurricane Irma.
Today, these families are starting to receive insurance payouts to cover their losses from these storms. And as families spend cash to replace the things they lost, a handful of specific companies will be selling furniture, flooring, fixtures and more…
As an investor, you should be able to profit from an advance in the stocks of these companies. And hopefully, you’ll use some of those profits to help someone in need following these terrible storms.
Demand Surges for Repair and Replacement Stocks
Earlier this month, we asked the question “is it ethical to profit from a hurricane?”
As an investor, I think it’s perfectly fine to buy shares of companies that will benefit from the cleanup following Harvey and Irma. But I also think we have a responsibility to be generous to those less fortunate than us.
And this is true all the time – not just after disasters like the ones we’ve seen in the last few weeks.
Shares of home furnishing and home repair stocks should do particularly well over the next few months, thanks to demand from hurricane victims.
Think about the thousands of homes that will need new carpet, hardwood floors, couches, beds, appliances and more. There are dozens (if not hundreds) of companies that will profit from new purchases related to the recent storms.
I expect these profits to be exceptionally high, and to continue for several quarters as insurance settlements are reached.
Insurance companies will be paying policyholders enough cash to replace all of the items that were lost during the storms. And these payments should usually cover the cost of new items (such as new flooring, new furniture, new washers and dryers etc.). So the amount of demand for new items could far exceed the actual value of the things that were lost due to flooding or wind damage.
Of course with so many claims to be filed and reviewed by adjusters, the process will take a long time. Not to mention the fact that homeowners will often take their time picking out just the right items to replace what was lost.
So home furnishing and repair companies should not only see demand surge right away, but that demand should continue to be high for months and months to come. And that’s why I expect many of these stocks to trend higher for some time to come…
A Great Spot to Find Disaster Relief Profits
With so many companies potentially benefiting from a surge in home repair and home furnishing purchases, investors have lots of stock opportunities.
If you’re looking for shares that will benefit from this surge in demand, I’d suggest checking out the SPDR S&P Homebuilders ETF (XHB).
Now, I’m not suggesting you buy shares of XHB. As a general rule, instead of buying the whole fund I’d rather you pick the best stocks that they hold.
Morningstar.com has a great resource that allows you to see the top holdings of any mutual fund or ETF. By looking at these holdings, you can see a great list of companies that are included in the fund, and pick your favorite stocks to buy in your own account.
To find this list, go to morningstar.com and put a fund’s ticker in the “quote” box at the top of the page. Once you’re on the fund’s page, click on “portfolio” for that particular fund. Finally, click on the “holdings” tab for the fund and you’ll see the top positions held by that fund.
In the case of XHB, there are a few companies that caught my attention (see list here):
- Mohawk Industries (NYSE:MHK) is a leader in flooring and should sell more carpet and hardwood flooring to customers in Florida and Texas.
- Tempur Sealy (NYSE:TPX) is a mattress company that should benefit as insurance companies pay to replace waterlogged bedding.
- Home Depot (NYSE:HD) and Lowes (NYSE:LOW) will both profit not only from hardware to renovate damaged homes, but also from appliance sales such as dishwashers, refrigerators, washers and dryers.
- Williams Sonoma (NYSE:WSM) is a niche retail store that should sell more decorative items as customers try to make newly renovated houses look and feel more like “home”
If you check out Morningstar’s page for this homebuilder / home furnishings fund, you’ll find some other great companies that are worth checking out. I think you’ll find quite a few worthwhile investment ideas.
Here’s to growing and protecting your wealth!