Event-Driven Investment & Trading Opportunities: Profiting from Pandemics, Recessions, Wars, Natural Disasters, Politics, & Other Events.
To make the research experience best for visitors the author of this blog has chosen not to run ads and refuses to accept donations, though many have offered. You can support the author of this blog by subscribing to Webull and beginning your trading journey with a successful deposit of $100. CLICK HERE (Trade from 4:00 AM to 8:00 PM Eastern)
Please understand the conditions surrounding these possible investments and do your own due diligence. Depending on certain underlying circumstances this list may not be appropriate considering the possible prevailing conditions. Past results are not a guarantee of future success. The purpose of this quick reference is strictly to provide stocks to consider in case of the following events. More in depth critical thinking is required before making these investment decisions. In short, do not blindly jump into these securities without doing your own due diligence.
BUY/LONG: Gold (GOLD/GDX/AUY/GLD/GDXJ), Volatility (VIX/VIXY/VIXM), Clorox (CLX), Work From Home (ZM/DOCU/DBX/WORK), Masks & Protective Wear (AHPI/APT/LAKE), Vaccines (NVAX/INO/MRNA/GILD)
SELL/SHORT: Airlines (LUV/DAL/AAL/UAL), Car Rentals & Travel Services (CAR/HTZ.EXPE), Hotels (H/MAR/WYND/MGM/PK), Cruise Lines (RCL/CCL/NCLH), Oil (USO/CVX/XOM/XLE/BP).
BUY/LONG: Gold (GOLD/GDX/AUY/GLD/GDXJ), Volatility (VIX/VIXY/VIXM), Debt & Asset Recovery (PRAA ECPG), Discount Retailers (WMT/ROST/DLTR), Auto Parts & Maintenance (AZO/AAP/ORLY), Fast Food (MCD/YUM).
War's, International Conflict & Cyber Attacks
BUY/LONG: Gold (GOLD/GDX/AUY/GLD/GDXJ), Volatility (VIX/VIXY/VIXM), Cloud Security Firms (HACK, CRWD/FEYE), Oil (USO), Government Defense Contractors (XAR/NOC/GD/LMT/RTX/ITA).
BUY/LONG: Retail & Home Improvement (WMT/HD/LOW), Generators (GNRC), Carmax (KMX), Home Supplies & Repair (MAS), Offshore & Onshore oil/utility (MTRX), Clean Water (XYL).
SELL/SHORT: Insurance (ALL/TRV/CB/RNR/RE)
Politics & Unrest: The topics discussed in the Politics and Unrest are many and posting them in this Quick Reference will have the effect of confusing and misleading anyone who reads it. This topic cannot be summarized here. Please read it below.
Forward: Have you ever seen the market react on rather underwhelming news that has little to no bearing on the fundamentals of a company? Frequently occurring examples include a company officer having a inappropriate relationship with a staffer, a un-sourced rumor in a news paper, or geopolitical saber rattling between the U.S. and Iran. The reasons the market reacts to these phenomena is simple; uncertainty. Not necessarily the uncertainty of a business's ability to turn a profit, but uncertainty of how other traders will react to the news. In short, an event that has no bearing on the profitability of a business can induce selling pressure and scare traders into dumping a stock. This being the case, imagine what happens when a REAL event unfolds. What if investors aren't uncertain, but VERY certain that an event will have wider implications on the market? How do we trade? What do we invest in? What do we do?
Overview: The purpose of this entry is to discuss, assess, and analyze possible investments amid earth shattering events that will have a real market impact. Of course there is no guarantee that the markets will react the same way twice, but there are plenty of historical indicators to make these topics worth looking into. By the end of this publication you should have a solid foundation on contingency planning for events and crises that will likely happen many times over in our lifetimes. The topics to be discussed will be updated from time to time and include the following:
1. Pandemics2. Recessions3. Wars, International Conflicts, & Cyber Attacks4. Natural Disasters5. Politics & Unrest
Note: Some may argue that profiting from these events is unethical. I argue that leaving your investments unprotected is unethical. My advice is to never let anyone tell you that you have an obligation to lose money when a crisis occurs. If profiting from life's unfortunate circumstances makes you uneasy, please stop reading here.
Chart Credit: All charts and data provided were gathered from Webull.
Part 1: Pandemics
Pandemics: At the time of this publication, the United States is in the middle of the COVID-19 Pandemic. With its origin in China, the securities most affected initially were stocks of companies in China or heavily dependent on China. Disney closed down it's Chinese parks and Chinese box office revenue plummeted, Tesla shut down their Chinese plants, and Apple closed down much of their production in China. Initially, despite this news, the markets remained bullish. The announcements of these three companies, all on or before February 2nd 2020, did have a small negative effect on their share price, but for the most part the market as a whole continued moving along. It wasn't until February 20th, 19 days later, before it became evident that attempting to confine COVID-19 in China was not a possibility. When the mandatory quarantines were announced, SPY dipped from $336 on February 20th to a low of $222 on March 23rd; a $114 drop.
As a result the U.S. Government passed the Cares Act on March 27th 2020. The Cares Act gave a one time cash payment to tax payers and billions in loans to business and industries to an overall tune of nearly $2 trillion. The expectation of passage alone was enough to halt the faltering market which began to rebound on March 24th. Thus far, as of June 5th 2020, SPY was back up to $319.
Unlike the 2009 housing crisis, the COVID-19 Pandemic was not financial in nature, and therefore would not respond to stimulus the same way as endured during the "Great Recession." Businesses were perfectly viable when the Cares Act passed and the Act certainly could not cure the underlying cause of financial distress; mandated quarantines. However, as a result of shutting down schools, businesses, common areas, and international travel, the U.S. Government needed to increase spending to hold both people and businesses over until the medical infrastructure was in place to handle the most severe cases. Indeed it would be a fools errand to shut down commerce completely until a vaccine was eventually invented. The point of the Cares Act was simply to hold the economy afloat while quarantines slowed the spread of the virus and medical infrastructure could handle the increased demand in emergency services.
It is important to note that despite all of the investments that turned out to later be profitable, there was a severe drop in most of the stocks trading in U.S. stock exchanges. Traders did not initially know how to trade the pandemic, and uncertainty drove many out of the markets. However, once the market had bottomed out, people became more wise on where they could make a profit. These are a few of the securities that did relatively well amid the coronavirus crisis.
Pandemic Buying Opportunities:
- Gold: On February 20th, when the markets began to tank and uncertainty hit, many investors went for the classic comfort zone; Gold. Initially as the market dipped Gold ETF's, Indexes, & mining companies enjoyed an spike in price action. However they too soon succumbed to selling pressure. Nevertheless, most reliable Gold ETN's, indexes, and mining companies were beating the S&P by mid April, and by late April they enjoyed a profit over their pre-pandemic highs. The graphic below compares SPY to the Spider Gold Trust Index (GLD), Barrick Gold (GOLD), VanEck Vectors Gold Miners ETF (GDX), VanEck Vectors Junior Gold Miners ETF (GDXJ), and Yamana Gold (AUY). GLD (Commodity Index ETF) proved to be the best protection from market selling forces while GOLD (Mining Company) proved to have the best recovery and profit by the 1st of June. The ETF's made of a basket of gold mining companies preformed the worst out of this group of five tickers, but still realized a profit over the pre-pandemic plunge.
- Volatility: Those who had the foresight to bet on volatility as the market plummeted on February 20th saw returns as high as 450%! Traders of the CBOE Volatility Index (VIX) enjoyed up to 450% gains from February 20th to March 16th before tapering off slowly. Traders of the ProShares VIX Short-Term Futures ETF (VIXY) enjoyed up to a 400% increase from February 20th to March 18th. Finally, traders of the Proshares VIX Mid-Term Futures ETF (VIXM) enjoyed up to a 130% increase from February 20th to March 18th. And all while SPY was diving. Generally uncertainty breeds losses and volatility. And those who traded on VIX futures made a killing on the SPY pandemic drawback.
- Clorox (CLX): One of the more obvious plays to trade the COVID-19 pandemic was Clorox. From February 20th til the market low on March 23rd CLX jumped 3%. By June 1st CLX enjoyed a 24% gain.
- Work from Home Companies: Amid a nationwide quarantine, companies that enabled people to work remotely saw increased demand. Zoom (ZM) afforded businesses, governments, schools, and military to hold meetings and undertake online group projects. Docusign (DOCU) enabled workers to electronically sign documents on different devises, and had enough encryption to amount to a legal signature. Dropbox (DBX) afforded schools and businesses to transfer documents on common projects where it was necessary for multiple people to access the same work product. Slack Technologies (WORK) enabled businesses not only to send their employees home to work, but to also maintain supervision on workers as they work at home. When SPY was at down 33% on March 23rd, traders of ZM, DOCU, DBX, and WORK enjoyed a 54%, -8%, -6%, and -10%, respectivly. By June 1st these securities were up about 97%, 60%, 36%, and 28%, respectively.
- Masks & Protective Wear: One of the most lucrative investments during the early stages of the COVID-19 pandemic were some of the smaller companies that manufactured protective masks. The shortage of protective wear became apparent very early on and the U.S. Government began putting in orders for masks from wherever they could find them. Protective masks enjoyed strong international demand as well. As traders and investors we must take into account that the U.S. Government will likely be better prepared the next pandemic, however we can be somewhat certain that protective mask manufacturers will enjoy some increased demand all the same. Nevertheless it must be observed that companies like 3M (MMM) did not enjoy the boost that some of the smaller companies received. In fact, as of June 1st 3M is barely in the positive since the February 20th drop. The three companies indicated on the chart below are Lakeland Industries (LAKE), Allied Healthcare Products Inc. (AHPI), & Alpha Pro Tech (APT). The gains enjoyed by these companies amid the COVID-19 pandemic in most part due to n95 masks is nothing short of amazing.
- Vaccines: There is no cure for a virus, though immunity to a virus can be boosted. That's why we get our flu shots annually and why we vaccinate our children from antiquated but historically deadly viruses. It should therefore come as no surprise that with a new deadly virus, shareholders are going to speculate on the companies working on a new vaccine. And as demonstrated on the chart below, companies researching and testing for a possible vaccine are enjoying a major boost in shareholder attention. As COVID-19 is not likely going to go away any time soon, the company that develops the vaccine will likely enjoy profitability for years to come. Here we examine a few of the more popular vaccine companies, but this list is far from complete. The returns as enjoyed by the shareholders of Novavax (NVAX), Inovio (INO), Moderna (MDRA), and Gilead (GILD) are, much like the masks and protective wear companies, amazing.
Pandemic Short Opportunities:
- Airlines: When it became apparent that a highly contagious virus was spreading across China the Trump Administration locked down travel to the United States. While this may have slowed the spread of COVID-19, it proved to be but a temporary solution. Soon after more and more travel bans were implemented to include the European Union. Additionally U.S. Government employees and military personnel were prevented from non-mission essential travel. Moreover, U.S. citizens and U.S. businesses opted to forgo many of their travel plans. As a result airline securities collapsed and the airlines became a distressed industry. By June 1st, four of the most popular airlines are still significantly down since the February 20th dip. Depicted below are American Airlines (AAL), Southwest Airlines, (LUV), United Airlines (UAL), and Delta Airlines (DAL). Note that Southwest is enjoying less pain as the company is known to be the most financially solvent. Nevertheless airlines amid a serious pandemic presents a seriously lucrative shorting opportunity.
- Car Rentals: Another example of the toll COVID-19 on the travel industry is the car rental industry. With less people travelling it stands to obvious reason that there will be decreased demand for car rentals. The worst by far was Hertz (HTZ) who, as a result of the decreased demand, filed for chapter 11 bankruptcy on May 22nd. From the February 22nd pandemic plunge to June 1st, shares of Hertz lost over 90% of their value. Avis (CAR) realized a small rebound but was down over a third of her pre-pandemic dip value all the same. Additionally added for instructional purposes is Expedia, the online travel booking service; down over 25% since February 20th.
- Hotels: With the damage done to the Airline Industry and the Rental Car Industry it should come as no surprise that Hotels were impacted as well, and for all the same reasons. Hyatt Hotels (H), Marriott (MAR), Wyndham Destinations (WYND), MGM Resorts (MGM), and Park Hotels and Resorts (PK), all suffered at minimum a 28% decline since the February 20th Dip.
- Cruise Lines: Especially impacted by COVID-19 were the cruise lines. News of cruise ships quarantined in port decimated the share value of Royal Caribbean (RCL), Carnival (CCL), and Norwegian (NCLH) to the tune of -47% or less by June 1st; A solid shorting opportunity for those with the foresight.
- Oil Companies & Oil: Quarantines, travel restrictions, work from home orders, mandatory store closings, slowing economic commerce, and recreational park closings all led to a historic drop in the quantity of oil demanded. The oil industry quickly found themselves in full contango (fowardation), and for the first time in recorded history oil futures sold at a negative rate, meaning the owner of the contact was paid to take the oil away. However for those holding futures while speculating on a rebound, the negative dip on April 20th 2020 meant they had not only lost all the value of their contract, but they had to pay a buyer to to take it away from them. Indeed, what is a speculator going to do with barrels of oil, and where is he going to legally store them?. Traders who speculated on leveraged oil ETN's quickly found that the institutions running the ETN's opted to liquidate them before losing billions on an eventual rebound. From February 20th to April 28th the United States Oil Fund ETF fell from $90 to $17 before rising to $26 on June 1st. The large oil companies fared better, albeit they are still realizing a negative return in share price since the February 20th dip. Depicted below are the charts for Chevron (CVX), Exxon Mobile (XOM), British Petroleum (BP), Spider Energy Select Sector ETF (XLE), and United States Oil ETF (USO), as compared to SPY. As you can see they are all better short opportunities than SPY, but the index's attached to oil futures are where the real shorting opportunities are amid a pandemic.
Pandemic Conclusion: These are neither all of the buying opportunities nor shorting opportunities amid a pandemic. Indeed a number of companies in the pharmaceutical realm saw huge increases in share prices as a result of COVID-19 test production, COVID-19 screening, COVID 19 treatments, respirators, government contracts for COVID-19 testing, and many more (many of which can be found on link number 32 HERE). Other industries that felt higher than usual pain are the restaurant industry (Other than those who delivered like PIZZA & DPZ), car sales, gambling, gyms/fitness centers, and more. Once again it must be noted that no two pandemics are alike but from COVID-19 we may want to keep in mind the following:
- BUY/LONG: Gold (GOLD/GDX/AUY/GLD/GDXJ), Volatility (VIX/VIXY/VIXM), Clorox (CLX), Work From Home (ZM/DOCU/DBX/WORK), Masks & Protective Wear (AHPI/APT/LAKE), Vaccines (NVAX/INO/MRNA/GILD)
- SELL/SHORT: Airlines (LUV/DAL/AAL/UAL), Car Rentals & Travel Services (CAR/HTZ.EXPE), Hotels (H/MAR/WYND/MGM/PK), Cruise Lines (RCL/CCL/NCLH), Oil (USO/CVX/XOM/XLE/BP).
Important Note: The above list of companies are simply a reference of industries that generally did both well and bad based on the COVID-19 Pandemic. Do not confuse these companies as viable prospects this late in the pandemic, but rather, keep them in mind should another pandemic come or the COVID-19 Pandemic worsens.
Part 2: Recessions
Recessions: The "Great Recession," lasted officially from December 2007 to June 2009, and is the most recent guide to understanding the best and worst investments amid a modern recession. From 10 September 2007 to 09 March 2009 SPY dropped from a high of $156.48 to a low of $68.11; a decline of over 56%. On February 17th 2009 President Barack Obama signed The American Recovery and Reinvestment Act into law; 20 days before the market bottomed out. Despite many attempts to stabilize financial institutions and jump-start the housing market, markets continued to drop. There were a number of corporate bailouts, two stimulus bills, many new programs to assist industry, and three Federal Reserve short term interest rate reductions. The 2007 subprime crisis was financial in nature, and therefore required a financial response. This is to somewhat distinguish the COVID-19 induced recession whereas, though also financial in nature, insolvency in this case was as a result of policies to slow the spread of the virus. Moreover other factors must be taken into account today that was not an issue during the subprime crisis. For example there were less trade tensions with China amid the previous recession. So though the previous recession may be instructive, we must embrace the fact that no two recessions are alike and each new recession affects the market differently.
Recession Buying Opportunities: The phrase "buying opportunity" in reference to a recession must be taken with a grain of salt. Most publicly traded companies during the subprime crisis suffered very large declines in share price. Companies with exposure to the luxury market and superior goods, with trivial exception, were hammered. Companies that dealt in inferior goods did somewhat better.
- Gold: Gold ETF's, major gold miner stocks, and gold indexes did relatively well during the Great Recession. Early on, as economic trouble became apparent, shareholders of these instruments enjoyed a solid return. Nevertheless as market selling intensified from July to September 2008, so too did the selling of gold instruments. The price of gold itself, however, rebounded very quickly. Just like our current experience in the COVID-19 Recession, GLD (Commodity Index ETF) proved to be the best protection from negative market forces. As this commodity index is tied to the value of gold, this should come as no surprise. Smaller gold mining companies represented by the VanEck Vectors Junior Gold Miners ETF (GDXJ) came out a close third at the beginning of the recession. However GDXJ worked its way up to second from the top of this list toward the end of the recession. This is likely because smaller gold companies have more room to grow and benefit from the increase in the price of gold than their larger counterparts which ended third on the list and is represented by the VanEck Vectors Gold Miners ETF (GDX). Finally the two individual gold companies Barrick Gold (GOLD) and Yamana Gold (AUY) did poorer than both the gold index and the miners indexes.
- Volatility: Once again those who had the foresight to bet on volatility as the market plummeted saw returns as high as 300+%! Traders of the CBOE Volatility Index (VIX) enjoyed particularly high returns when the banks began collapsing in early to mid 2008.
- Debt & Asset Recovery: Though Portfolio Recovery Associates Group (PRAA) & Encore Capital Group (ECPG) crashed with the market, they seriously outperformed the market on the way out of the recession, and then some! As it turns out, there is a huge market for companies that buy debt and engage in collections in a recession. PRAA operates in the U.S. and Europe and is one of the worlds largest debt buying companies. PRAA buys up debt under face value and recovers as much as possible for banks, retailers, and governments. Perhaps more lucrative, PRAA buys sets of problem debt on the cheap and instead of selling it they attempt to recover their holdings. ECPG is a similar global debt and asset recovery service. In addition to purchasing portfolios of defaulted consumer receivables on the cheap, they also consult the originators of the loans on how to manage bad debt, among other associated services. In a financially stressed environment these companies seem to excel. In booming economies, not so much.
- Discount Retailers: Unsurprisingly the more popular discount stores prospered during the recession. Walmart (WMT), Ross Stores (ROST), and Dollar Tree (DLTR), were among the most successful. Keep in mind that each of these companies have a high amount of exposure to Chinese imports. COVID-19 combined with a recession and trade tensions with China may affect these companies differently than during the Great Recession.
- Auto Parts & Maintenance: With high unemployment and underemployment people tend to tighten their budgets. And when record numbers of people are tying to stretch a dollar out as far as they can, they are more inclined to forgo a new vehicle purchase. That means maintaining the vehicle they have. Why, if you're strapped for cash, would you take your vehicle to a mechanic for a new battery or an oil change? If you're uncertain that you can pay the electric bill the following month, are you going to let the mechanic sell you a set of marked up wipers or replace the bulb in your tail light? Likely not. Which is why companies like Autozone (AZO), Advanced Auto Parts (AAP), and O'Reilly Auto Parts (ORLY) did so well during the Great Recession.
- Fast Food: Not all fast food restaurants did well during the recession. Indeed most did not. But the two solid standouts were Yum Brands (YUM) which encompasses Taco Bell, Pizza Hut, & KFC, and the fast food king, McDonald's (MCD). Though unfortunate, it is likely cheaper to buy McDonald's in many cases than to drop by the grocery store for some healthy food. Another benefit for folks working multiple part time jobs is that fast food is quicker. Furthermore, if you're going to eat on on a serious budget, what better place to take the kids than to McDonald's? Sure, it may not be your preference, but the kids like it, and a happy meal only costs a few bucks. And then there is Yum Brands. Perhaps rivaling McDonald's as an even cheaper bite to eat is Taco Bell. It seems these fast food restaurants were built for a recession. While YUM felt the pain early on MCD share price was hardly phased by the economic downturn. Add it together with three years of dividends, all the merrier for the portfolio.
Recession Shorting Opportunities: Recession shorting opportunities are plentiful in an economic downturn and exceptionally easy to spot. As each recession is different, the most profitable shorts are usually tied to the cause of the recession, and thereafter, associated industries. During the housing crisis it was real estate and the banks that facilitated them that made for the best shorts. In the early 2000's it was the speculative dot com bubble, whereas online shopping companies were among the most profitable shorts. On September 11th 2001 you'd be hard pressed to find a stock that you could not short and turn a profit.
Recession Conclusion: There is never a perfect investment strategy during a recession. Wild market swings and volatility will no doubt make bag-holders out of long term investors and result in losses for short term traders. During a recession inferior goods thrive while luxury goods suffer. Even the politically conscious wealthy are fearful in flaunting their wealth with fancy purchases during a recession. If history is any indicator, full liquidation is always a bad strategy for long term investors. Averaging down, on the other hand, ensures a quicker recovery in your personal portfolio. It is furthermore important to buy quality long term profitable companies in a recession. Financially stressed companies my be profitable speculative plays, but they come with a very uncomfortable amount of risk. Finally, there are few industries that went unmentioned here; utilities, tobacco, beer/alcohol, service/repair, healthcare, and consumer staples can do relatively better than most industries in a recession. However the aforementioned are the companies that seemed to thrive in the last recession.
- BUY/LONG: Gold (GOLD/GDX/AUY/GLD/GDXJ), Volatility (VIX/VIXY/VIXM), Debt & Asset Recovery (PRAA ECPG), Discount Retailers (WMT/ROST/DLTR), Auto Parts & Maintenance (AZO/AAP/ORLY), Fast Food (MCD/YUM).
Part 3: Wars, International Conflict, & Cyber Attacks
Wars, International Conflict, & Cyber Attacks: Markets hate uncertainty and conflict breeds uncertainty. When major terrorist attacks, saber rattling, cyber attacks, and bombings occur, the market as whole generally plummets. However there are a few industries that thrive amid the uncertainty of conflict. Below we will examine them.
Photo Credit: LPL Financial Research
Wars, International Conflict, & Cyber Attacks Buying Opportunities:
- Operation Martyr Soleimani: The most recent threat of war as of writing this was the Iranian attacks on U.S. Bases in Iraq in early January 2020. On January 3rd 2020 President Trump authorized an air strike on Iranian Islamic Revolutionary Guard Force Commander General Qasen Soleimani for arming Iranian backed militias to attack U.S. installations in Iraq. Around midnight in Iraqi time on 08 January 2020 Iran retaliated with a short range ballistic missiles on U.S. military installations. On the same day Iran also shot down Ukraine International Airlines Flight 752 killing 176 civilian passengers. Given President Trumps hard-line stance against terrorism, it appeared that the U.S. was on an imminent path to war with Iran. However late in the morning on the 8th of January, President Trump announced that deescalation was underway and opted instead to undergo economic sanctions.
- Trading the Iranian Attack: Trading this attack was impossible, but still instructive. Overnight oil futures jumped to a four month high pre-market but later returned to the prices they were trading the day before. This is simply because a quarter of the global oil consumption passes annual through the Straight of Hormuz, which neighbors Iran. A war with Iran would almost certainly mean shutting down the Straight. Gold also experienced a spike. So too did Volatility futures, defense contractors, and cyber security cloud firms. However, as President Trump was announcing that war with Iran was not on the horizon, the markets rebounded while these securities and instruments settled back to their pre-attack trading prices. I personally bought 10 SPY calls while watching the President speak and cashed them out for a quick $2,000.
- Trading Modern Warfare: Just as in recession and pandemics, gold and volatility typically experience a sharp increase in price. Unlike recessions and pandemics, however, government contractors and cloud security firm stocks generally experience a boost in price. Though cloud computing is relatively new and untested, the Iranian example may provide some indicator as to what to expect as modern warfare increasingly goes hybrid. Moreover government defense contractors may enjoy a sharp increase in price as they did after September 11th, the 2003 Invasion of Iraq, the announcement of Operation Inherent Resolve (Fight against ISIS), and amid the most recent conflict with Iran. Finally, oil futures generally go up on the threat of war as, 1.The oil rich Middle East is a constant source of international turmoil, 2. Wars bring into question international waterways and trade routes, and 3. Wars require a great deal of petroleum and jet fuel. While the greater market generally suffers amid international conflicts, these industries seem to prosper if not help to mitigate losses thereafter.
- BUY/LONG: Gold (GOLD/GDX/AUY/GLD/GDXJ), Volatility (VIX/VIXY/VIXM), Cloud Security Firms (HACK, CRWD/FEYE), Oil (USO), Government Defense Contractors (XAR/NOC/GD/LMT/RTX/ITA).
Part 4: Natural Disasters
Natural Disaster Buying Opportunities: Not all natural disasters move the markets. The most common natural disasters in the United States are hurricanes, flooding, wildfires, and rarely, earthquakes. Volcanic eruptions are unlikely in the United States and tornadoes usually do not create enough damage to throw the markets. However, no matter what the circumstance, there are a few constant necessities that will always be needed after a natural disaster. They are generators, batteries, construction companies, water testing and treatment companies, and home improvement companies. As you can imagine insurance and reinsurance companies are less inclined to do well. Moreover, companies that are headquartered or based out of the disaster area might also see a decline in share price.
- Retail Natural Disaster Companies: A natural disaster that can be easily predicted is a risk that many businesses and homeowners can mitigate. And when a hurricane is expected to hit land within a few days, they spend money on home improvement supplies, generators, food, batteries, water, milk, toilet paper, among other supplies. Sure, the hurricane may take out some store locations; but stores are typically insured for damages and lost profit due to natural disasters. And the big box retailer Walmart (WMT) will sell a lot of supplies and foodstuffs in an at risk location. So too will Home Depot (HD) or Lowes (LOW). However both HD & LOW will also profit from the aftermath of the storm, as people buy goods to repair damages to their property. Generac Holdings (GNRC) will also likely benefit form a natural disaster. As a power system solution company GNRC builds generators, and not just the small ones that can power a few outlets in a home.
- After the Storm: Whether a hurricane goes inland or not, if the storm is large enough, there will be flooding. The worst flooding is generally reserved to towns along river basins and the worst can come many days after the storm has passed. Thousands of personally owned vehicles get swept away or damaged. As most people insure their vehicles, as required by law, they may have a claim. However insurance companies pay only for the depreciated value of totaled vehicles. Also many car insurance companies don't cover water damage or floods. Many people will need to start over altogether and money may be tight. That's why the used car dealer, Carmax (KMX), has done historically well after serious hurricanes and floods. Masco (MAS) is another contender to benefit from damaged homes. MAS designs, manufactures, markets, and sells home improvement products to include but not limited to Behr exterior paint, Delta & Hansgrohe faucets, and Kraftmaide & Merillat cabinets. Matrix (MTRX) repairs offshore oil rigs, onshore tanks, and electrical infrastructure. Finally, contaminated water is always an issue amid flood zones. Xylem Inc. (XYL) tends to benefit as a result via government contracts to make the water safe again.
Natural Disaster Short Opportunities: Shorting opportunities for natural disasters are few and far between when we compare them to pandemics, recessions, and wars. However there is one industry that stands to lose big amid a natural disaster; the insurance industry. Particularly the reinsurance industry. Historically, when shareholders become aware of an inbound hurricane, shareholders ditch insurance stocks. However this shorting strategy can be risky. Hurricanes are always changing trajectory and if the storm fails to make landfall, or fails to sufficiently flood enough land mass, the share price of an insurance company may increase. There is a list of possible short opportunities below, but remember to make sure the insurance company you're shorting has a great deal of exposure to the area the hurricane is impacting.
Natural Disaster Conclusion: Natural disasters happen annually in the United States. The East Coast and the Southeast are prone to hurricanes and floods while the West Coast is subject to annual wild fires and possible earthquakes. These events can be tough to gauge, and make no mistake about it, if you are investing on disaster you are betting that things will get very bad. However, if the situation turns out less disastrous than you thought, you could lose some serious money. Be careful betting for or against mother nature.
- BUY/LONG: Retail & Home Improvement (WMT/HD/LOW), Generators (GNRC), Carmax (KMX), Home Supplies & Repair (MAS), Offshore & Onshore oil/utility (MTRX), Clean Water (XYL).
- SELL/SHORT: Insurance (ALL/TRV/CB/RNR/RE)
Part 5: Politics and Unrest
Politics and Unrest: Nothing can create speculation around an industry like politics. Rules and regulations surrounding a proposed bill, talk of banning firearms, and President Trumps Twitter account all have sway over the markets. Furthermore, social unrest has the tendency to drive policy, which can increase speculation or advance changes in laws. Below are a list of things you may want to consider when considering the political events of the day.
- Firearms: Mass shootings always make the headlines, and almost immediately after, politicians begin talk of banning certain types of firearms. If a Democrat is in the White House, the threat of banning a specific type of firearm or increasing federal rules and regulations on all firearms is especially noteworthy. In almost every case when Democrats demanded gun reform, there was a spike in gun sales and background checks. Moreover the firearms manufacturers enjoyed a steady backlog of orders from gun shops. Aditionally, if there are violent protests, people are more inclined to buy guns for self and home defense. Particularly when you turn on the TV and see truckers dragged out of their vehicles and beaten down, travelers harassed, or protesters damaging the vehicles of passing motorists. Indeed when all of these events happened against the back drop of the Black Lives Matter protests in late May to June of 2020, Strum, Ruger & Co's (RGR) stock went up $10 per share. Should cities give in to demands to de-funding municipal police departments, that price may go higher. Firearms are one of the few industries that experience an increase in share price the more Washington talks about banning or restricting their business. Even all the talk about closing down gun shops amid the COVID-19 pandemic boosted RGR share price. Oddly enough, when mass shootings, gun store closures, and protests weren't in the headlines, RGR was having a tough time meeting their revenue and EPS targets.
- Body Cameras & Police Equipment: The Black Lives Matter movement is in the headlines again, and as a result traders are speculating on police body cam plays. From late May to June 17th Axon (AAXN) is up over 23%. In the same time frame Digital Ally (DGLY) is up 469%. No, that's not a typo!
- Legislation: Some legislation can make or break a stock. Word of a bill denying Intelsat's, a foreign 5-G company, ability to profit off the C-band spectrum was enough to drive their share price through the floor and they eventually filed for bankruptcy. Increasing rules, regulations, restrictions, and taxes on cigarette and vaping companies will no doubt have an effect on Philip Morris. An increase in the federal minimum wage will have implications market wide on company revenue. Indeed it is always good to see what Congress has on the docket and assess as to if it will pass. In many cases politicians engage in the partisan act of pretending they want to pass a bill that they know will fail for no other purpose than to garner votes and paint the other side as evil. In most cases they do this knowing, that if their party controlled all three branches of government, they'd never bring the issue to a vote.
- President Trump's Twitter Page: President Trumps twitter page has the power to move markets on direction or another. When he tweets of promising trade negotiations with China, there is typically a market rally. When he tweets the opposite, the markets decline. However, as far as talking up the markets go no president in my lifetime has done it better. Say what you will about the mans politics, the market loves him. And his Twitter page moves markets harder than the Federal Reserve Chairman testifying on Capital Hill. From 2017-2020 I could generally tell you what kind of day the markets were going to have based on what President Trump tweeted about trade and economic policy.
Politics & Unrest Conclusion: If you pay attention to the political happenings of the day you will no doubt find a way to profit from it. Whether it be paying attention to legislation, police brutality protests, Trumps Twitter Page, or political reactions to gun violence, there is always a way to profit.
(WORK IN PROGRESS)
Note: Add Oil Spills
Other Useful Links
5. The Quickest Way to Figure Out Whats Happening to Your Stock & Helpful Tips on Leveraging Social Media
If you like this information and wish to help me out, Join Webull, make a $100 deposit, and receive two free stocks.
- Trades from 4:00 a.m. to 8:00 p.m. (eastern) [Be the first to react to overnight news. I cant tell you how many times extended trading hours got me out of a jam or afforded me the opportunity to take advantage of overnight news]
-Commission Free Trades
-Commission Free Options
-Commission Free Shorting on the Most Liquid Securities
-Free Stocks for Joining and Depositing
-Built in Forum and News Feed
-Lend your Long Shares to Shorts for Passive Profit
-Great Charting and Analysis Tools
-Built in Stock Screener
-Transfer is Easy. If your Funds and Stocks are Settled you can Transfer Easily from one Broker to the Next.
-Transfer reimbursement (Up to a limited amount)
IMPORTANT DISCLAIMER: I am NOT a registered investment adviser, broker dealer, or member of any other association for research providers in any jurisdiction whatsoever and I am NOT qualified to give financial advice. Investing/Trading in securities, particularly microcap securities, is highly speculative and carries and extremely high degree of risk. The information, analysis, and opinions listed above are my own and may not properly reflect the underlying conditions of a company or security. You should do your own Due Diligence. If you trade based on anything I have written YOU ACCEPT FULL RESPONSIBILITY AND LIABILITY for your own trades and actions and hold the author of this publication harmless. If that isn't clear enough DO NOT TRADE, ACT, OR INVEST, BASED UPON ANYTHING I WRITE OR RECOMMEND. There, we should be solid now.