We are already feeling the impact of Hurricane Florence as it bears down on the North Carolina coast with our energy stocks like Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL) jumping higher on the rising oil price. But there’s another group of stocks that are also likely to be affected by the devastating storm in both a good and a bad way. One stock that could come under pressure is insurer QBE Insurance Group Ltd (ASX: QBE) given its relatively large exposure to the US market, but that doesn’t seem to worry investors today with the…
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We are already feeling the impact of Hurricane Florence as it bears down on the North Carolina coast with our energy stocks like Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL) jumping higher on the rising oil price.
But there’s another group of stocks that are also likely to be affected by the devastating storm in both a good and a bad way.
One stock that could come under pressure is insurer QBE Insurance Group Ltd (ASX: QBE) given its relatively large exposure to the US market, but that doesn’t seem to worry investors today with the stock jumping 1% to $10.84 in after lunch trade.
That’s better than the 0.6% gain on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) and the market may be unconcerned because insurance claims from QBE’s customers are likely to be well contained.
“At this stage it is too early to be certain, but it appears QBE is well protected against hurricane risk at this point in the half,” said Deutsche Bank.
“The group had a very benign first half of the year, and as a result has close to the full $900 million of its aggregate reinsurance program available to absorb losses.”
QBE’s reinsurance program (which is essentially an insurer taking out insurance) means that the group won’t be liable for losses above $600 million. For total claims under this threshold, QBE has to pay around 40% of the amount.
What this means is that QBE’s total exposure is probably limited to $440 million, noted Deutsche. The insurer can easily weather this claim.
The broker rates the stock a “hold”, but I think QBE is a “buy” due to its attractive valuation and early signs that the company has turned a corner.
Meanwhile, there are a few stocks that are likely to benefit in the post hurricane clean up. I am praying that there won’t be any casualties from the extreme weather event but I suspect there will be a lot of property damage.
This could drive demand for building supplies from Boral Limited (ASX: BLD), which coincidentally has two facilities in North Carolina. Its peer James Hardie Industries plc (ASX: JHX) also has a material presence in the US building market.
Another stock that could benefit is plumbing products maker Reliance Worldwide Corporation Ltd (ASX: RWC).
The company, which is famous for its innovative SharkBite pipe joining product, generates around 69% of its $769 million in FY18 sales from the US.
I have a feeling it too will see a surge in demand for its plumbing solutions.
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Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.