The United States was recently devastated by two back-to-back hurricanes — Harvey and Irma — one being Category 4 and the other Category 5. These deadly storms wreaked havoc across Texas and Florida causing widespread damages to life and property, once again proving the vulnerability of human life.
To add to the woes, the hurricanes caused incessant rainfall, resulting in severe floods that crippled transportation facilities and inundated vast tracts of agricultural fields. All these events cumulatively eroded significant wealth from the economy and impacted near-term growth momentum of the country.
Possible Economic Impact
It is probably too early to quote the full extent of the collateral damages due to these hurricanes, as the economic costs associated with them are still rolling in and are expected to climb further. However, several experts and analysts have put forth certain estimates based on their individual calculation. According to the preliminary estimates by Moody’s Analytics, Harvey and Irma together caused between $150 billion and $200 billion in damages to homes and furnishings, vehicles, commercial real estate, and public infrastructure. This is comparable to the loss due to Hurricane Katrina — another deadly hurricane that ravaged the country in 2005.
Joel Meyers, the President of AccuWeather, however, believes that the hurricanes collectively cost the public exchequer to the tune of $290 billion, which equates to about 1.5% of the gross domestic product of the country. He further opined that the catastrophic storms were likely to contract the growth momentum of the country in the third quarter as subsequent rebuilding consumes further resources.
On the other hand, Goldman Sachs pegs the individual losses at $30 billion and $85 billion for Irma and Harvey, respectively. According to Goldman, Hurricane Irma was the 10th most impactful natural disaster in the United States, affecting approximately 6.1% of the populace. With pervasive devastations, the firm currently anticipates third-quarter GDP to contract 0.8 percentage points to about 2%.
How to Profit During This Challenging Time
Despite the initial setbacks, the U.S. equity markets scaled near record highs in the aftermath of the hurricanes as investors regained their appetite for riskier bets like equities, courtesy of strengthening dollar and sell-off in global bond markets. As the country focuses on its rebuilding efforts, the Industrial Products sector is likely to immensely benefit from continuous investments in infrastructure related assets.
In addition, riding on the government’s proposed $1 trillion spending on infrastructure improvement, the Industrial Products sector has gained 11.3% year to date. Other factors like the steadily improving housing, automotive and commercial construction markets as well as uptick in new job additions augur well for the industry. Consequently, investors can expect to profit by focusing on some prized stocks from this sector that are driven by solid fundamentals.
4 Industrial Stocks to Benefit
In order to select the best stocks from the sector, we have screened for stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) with a VGM Score of A or B and average return on equity for the trailing four quarters in excess of 20.
Allegion plc ALLE: Headquartered in Dublin, Ireland, Allegion is a leading global provider of security products and solutions for business and domestic purposes. This Zacks Rank #2 stock has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank stocks here. With a healthy long-term earnings growth expectation of 13.8%, Allegion boasts an average return on equity in the trailing four quarters of 198.3.
Owens-Illinois, Inc. OI: Headquartered in Perrysburg, OH, Owens-Illinois offers glass containers to food and beverage manufacturers across the world. This Zacks Rank #2 stock has a VGM Score of B. With a modest long-term earnings growth expectation of 9.7%, the firm boasts an average return on equity in the trailing four quarters of 72.2.
Avery Dennison Corp. AVY: Headquartered in Glendale, CA, Avery Dennison produces pressure-sensitive materials, and a variety of tickets, tags, labels and other converted products. This Zacks Rank #2 stock has a VGM Score of B. With a decent long-term earnings growth expectation of 7%, Avery Dennison boasts an average return on equity in the trailing four quarters of 39.3.
Ituran Location and Control Ltd. ITRN: headquartered in Azor, Israel, Ituran Location provides location-based services and wireless communications products in Israel, Brazil, Argentina, and the United States. This Zacks Rank #2 stock has a VGM Score of B. Ituran Location boasts an average return on equity in the trailing four quarters of 36.1.
Spencer Hill, an economist at Goldman, observed, "We believe the huge property losses and relatively broad-based societal footprints of Hurricanes Harvey and Irma suggest a relatively large impact on near-term growth." Amid such a scenario, investors can expect to gain by investing in the above-mentioned industrial products stocks that have a healthy return on investment along with some solid fundamental strength.
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