Hurricane Irene is dominating the headlines this weekend, with the entire East Coast on high alert. The storm will strike North Carolina early Saturday morning, and sweep all the way up to Maine if its current path holds — most likely roaring through New York, Boston, D.C. and Philadelphia.
Big storms like this create a big fear factor because residents in affected areas don’t know what to expect. Will there be flooding? Lost power? Will it all blow over? It seems prudent to prepare for the worst and hope for the best.
As Hurricane Irene bears down on the East Coast, here are three ways to prepare your portfolio for the possibility of economic disruptions caused by the storm. Though natural disasters come and go — and buy-and-hold investors never should alter their strategy based on a weather report — anyone with a short-term outlook should consider making these moves today:
Sell Any Volatile or Risky Positions Today: If the hurricane disrupts infrastructure significantly — including urban areas losing power for long periods, ports and airports crippled or other damages — the market could see a sharp move down Monday when it digests a weekend’s worth of bad news in one day. Again, long-term investors who buy and hold shouldn’t sweat a few days of volatility. But if you have a risky play or a trade you need to close out soon, it might be prudent to exit that position today before the market closes to be on the safe side.
Sell Insurance Stocks: If you own Allstate (NYSE:ALL) or Travelers (NYSE:TRV) and are planning on holding the insurers for years to come, there’s no need to panic. But if you are trading these stocks or looking to exit a position in the next year or so, today might be the day to sell. That’s because insurers are prepping for up to $11 billion in damages from Hurricane Irene. Yes, that’s nowhere near the nearly $44 billion in estimated claims after the havoc wreaked by Hurricane Katrina. But it’s a huge chunk of change. There’s talk of insurers raising prices in the wake of the hurricane to cover costs, but that won’t change the fact that premiums won’t come close to liabilities paid in the weeks ahead if things are as bad as some say. Allstate and Travelers have significantly underperformed the market in the last week as Irene has gathered steam, with TRV losing almost 4% as of the closing bell Thursday despite a 1.4% gain for the Dow since last Friday, while Allstate stock is flat. And as with the previous mention of a broad sell-off as the market prices in a whole weekend’s worth of bad news on Monday after the opening bell, it could get ugly even for mega-cap insurers like Allstate and Travelers with decent dividends.
Buy Home Depot: Just two weeks ago, Home Depot (NYSE:HD) announced solid results and raised guidance despite pessimism in the home improvement segment. Net income was up 14.3% to $1.4 billion, or 86 cents per share, while sales on the quarter were up 4.2% to $20.2 billion. Lest you think that was all abroad and at new locales, Home Depot’s numbers showed same-store sales jumped 4.3%, with a 3.5% increase in the rough housing market of the U.S. With the run on plywood and other preparatory supplies, Home Depot could get a quick short-term boost — and the sale of replacement windows or chainsaws to hack away fallen tree limbs could result in more revenue after the fact. Home Depot seems to be weathering the real estate storm just fine, and now might be as good a time as any to jump into the building behemoth. Lest you think this is profiting from death and disaster, look at it this way: You are investing in the rebuilding of the East Coast by holding Home Depot.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
