Winter Storms Become Market Movers

Posted: Feb 15, 2014 12:01 AM
Winter Storms Become Market Movers

"Just thinking about the weather" -- no, the 1987 song made popular by the band 10,0000 Maniacs is not running through my head. Rather I am marooned in Southern California while the South and Eastern parts of the U.S. get rocked by another ice-and-snow storm in the second half of this week. That storm could drop 8 to 14 inches of snow in Washington, D.C. This week's major winter storm will severely affect travelers and residents from Texas to the Carolinas and up the East Coast.

Keep in mind that this is the latest major winter storm that follows other big ones just a few weeks ago. Ahead of this storm, more than 650 flights were canceled at Atlanta International Airport as of late Tuesday. Given the forecast Maryland Governor Martin O'Malley has issued a State of Emergency Declaration. Odds are that more will be canceled, including my own flight back on JetBlue later this week. Those cancellations will take a toll on the stocks of airlines, particularly those that have hubs in the affected areas: JetBlue (JBLU), American Airlines (AAL) and Delta Air Lines(DAL) in particular.

Disruptions will also affect the homebuilders: They can't sell a home if a person can't get to it, and you can't build one in the snow. Tally up the impact from the recent rash of winter storms, and homebuilder deliveries and closings in the current quarter will more than likely fall short. That's not good for companies such as Toll Brothers (TOL), Ryland Group (RYL) and DR Horton (DHI).

Some retailers, such as Home Depot (HD) and Lowe's (LOW), are likely to see a pickup in activity as consumers get ready for the storms. That could mean generators, snow blowers, shovels and the like. That probably means consumers will spend less on eating out -- you can't eat out if you can't get out. Combine that with rising beef and pork prices, and the combined effect of the winter storms will hit casual-dining restaurants, such as Chipotle Mexican Grill (CMG), Darden Restaurants' (DRI) portfolios and a number of others.

Retailers are a harder one to call, but those that are brick-and-mortar heavy or don't have winter gear (apparel and so on) will feel the impact. One company that should benefit from this year's winter storms is VF Corp. (VFC) and its North Face business. I suspect that (AMZN) will also be a beneficiary of shut-in online shopping.

Of course, as we are all shut in for a few days in the ice and snow, there are two things we will probably do. One is to turn up the heat to stay warm, and I shared my short-term trading view on the Utilities Select Sector SPDR (XLU) as a way to profit from those higher heating bills that will start to hit in a few weeks. And we will probably spend more time in front of our screens. Digital content companies should see a pickup in ebook sales, movie and TV rentals as well as on-demand screenings. Even though we hear that Apple's (AAPL) iTunes business would be a Fortune 500 company on its own, a few days of more movie and TV downloads probably won't move the needle. The storm weather could drive better-than-expected volume at Outerwall's (OUTR) Red Box business as people prepare for the storm.

Only six weeks into the current quarter, we've had a few high-profile winter storms that have caused a few days of disruption. Do the math and you'll see that the combined tall of five-plus days of weaker-than-expected activity equates to 4%-7% of revenue opportunity, depending on location and severity. Said a different way, the aggregate impact of winter storms this year could mean a revenue shortfall in the current quarter.

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