The past few weeks have shown us a hurricane season unlike any we’ve ever seen, reminding us just how powerful Mother Nature really is.

Back to back, the southern U.S. and neighboring islands were hammered with devastating storms. First came Harvey in Houston, and then Irma wrecked the entire state of Florida along with many tropical islands.

Now, Hurricane Jose continues to lurk off the East Coast, threatening severe tropical storm conditions throughout the week, and stretching from the mid-Atlantic all the way to New England.

Hurricane Maria, recently declared a Category 5 hurricane, pounded the small island of Dominica with catastrophic winds Monday night and is now heading for the same path of destruction as the already battered Caribbean islands that Irma hit just a few weeks ago.

No matter how closely the storms are monitored, we can never truly predict their strength or the amount of damage that they will reap until the storms make landfall.

This point has been proven a thousand times over with the amassed wreckage seen in Houston, Florida, and the Caribbean islands.

There are some physical precautionary measures we can take that we all know about: stock up on food and fresh water, gather all important documents and valuables, board up windows, batten down the hatches, and in the direst of situations, evacuate safely.

Afterward, once the skies clear, the infrastructure damage is by far the most obvious destruction when we think about natural disasters — not just hurricanes.

On the other hand, the economic effects of any natural disaster often hit much harder than the physical damage, coming on like an aftershock.

The economic consequences are rarely considered beyond what the cost will be to rebuild infrastructure.

Every hurricane and other natural disaster is different, and its effects vary depending on where and how severe the storm is.

One of the biggest problems for areas affected by natural disasters is business disruption.

With road, communication infrastructure, and building damage common after sizable disasters, it’s not unheard of for local businesses to shut down for indeterminate amounts of time. And this can have lasting effects on the general economy. Take New Orleans, for example. Its already weak economy has barely bounced back even though it’s been years since Hurricane Katrina.

The key will be to see how a hurricane will affect the economy and then reverse engineer it to find assets that move the most in the environment. Sure, it sounds simple to do when it’s written down, but in all actuality, it is in fact very, very difficult.

But for you personally, there are ways to “play” a natural disaster in order to protect your finances.

While the immediate effects following such disasters can include declines in stock prices in certain sectors, they can also create the most unexpected opportunities.

For investors, such disasters offer opportunities that are twofold in nature: you can contribute to the rebuilding efforts and also position your portfolio for large returns…

Hurricane Investing: Oil Industry

Even though we may feel squeamish about companies benefiting from natural disasters, the truth is that some companies do very well when disasters strike.

While any natural disaster can be incredibly devastating, hurricanes typically account for the most damage of natural disasters occurring in the U.S. In most cases, they are the only disasters that you can invest around because of their predictability, which gives investors the chance to make investments before and after one occurs.

Because hurricanes mostly affect the Gulf Coast, the oil industry usually takes a hard hit after one due to the large number of refineries and shipping ports in the area. But generally, all aspects of the oil industry feel the effects of a hurricane — not just the price.

Hurricane Harvey left much of Houston underwater, which sent fuel prices skyrocketing — a reaction that I’m sure we all felt — before they finally normalized.

So, buying or selling oil industry ETFs, such as SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP), SPDR Oil & Gas Equipment & Services ETF (NYSE: XES), and First Trust Nasdaq Oil & Gas ETF (NASDAQ: FTXN), would be one way to play the disaster before or after it happens.

Hurricane Investing: Car Industry

The car industry would be another smart way to play the disaster for your own protection and profit.

Cars are often destroyed en masse when a hurricane rolls in because of flooding and strong winds.

Carmakers may see a healthy boost in sales following a hurricane, whereas car dealerships such as AutoNation and CarMax may see their inventories wiped out.

Parts retailers may also see a hit in their sales because new replacement cars will be hitting the streets after a hurricane and won’t need repairs anytime soon.

Obviously, car insurance companies would also take a hit from such events, which is no different from insurers that cover homes and businesses.

An auto industry ETF that would be a smart play is the First Trust NASDAQ Global Auto ETF (NASDAQ: CARZ).

Hurricane Investing: Home Improvement Stores

Hurricane Irma did her absolute best to completely flatten the homes that were in her path, especially those in the Florida Keys. Thousands of homes, businesses, and other buildings were obliterated.

Now that it’s time to rebuild, retail and home improvement stores, like Wal-Mart (NYSE: WMT), Home Depot (NYSE: HD), Lowes (NYSE: LOW), and Generac (NYSE: GNRC), will see bumps in sales as consumers tend to make more purchases at these stores directly after severe storms.

Building materials manufacturer and distributor USG Corporation (NYSE: USG) rose over 8% in the days after Hurricane Irma hit.

Roofing material distributor Beacon Roofing Supply (NASDAQ: BECN), also rose during the aftermath of Irma.

Shares of both Home Depot and Lowes saw increases over 2% in their share prices.

Furthermore, raw materials companies could also benefit from the wood, metal, and stone required for making necessary repairs to homes, other buildings, and general infrastructure.

So, buying something like the Vanguard Materials ETF (NYSE: VAW) would grant you exposure to some of the materials needed for rebuilding after a hurricane.

Hurricane Investing: Hotel Industry

Unfortunately, when disaster strikes, many people are forced to evacuate their homes and towns in order to stay out of harm’s way.

With Hurricane Harvey and Hurricane Irma, the news media highlighted many neighborhoods and areas that were placed under mandatory evacuation because the imminent threat was so great.

So, when entire neighborhoods are displaced due to a natural disaster, many of the residents end up in hotels.

Large hotel chains, such as Hilton (NYSE: HLT) and Marriott (NYSE: MAR), often see bookings skyrocket both before and after catastrophes, and this, in turn, helps their bottom lines.

In the severest and most devastating of cases with hurricanes and fires, government agencies and insurance companies sometimes pay for extended hotel stays for those who are displaced by the disasters.

The Bottom Line

There’s no doubt that natural disasters have been increasing in recent decades, meaning that you can’t afford to ignore them and the effects they may have on your life and money.

Smart investors look for diversity in their portfolios and ways to mitigate the effects of large global and economic events.

Including stocks that may benefit from — or at least won’t be hurt by — natural disasters is one smart way to protect your money.

That’s all for now.

Until next time,

John Peterson
Pro Trader Today