Retailers Reap Sandy Rewards

Many people on the Jersey Shore are moving back to reclaim what’s left of their homes and that involves a lot of materiel, in the form of lumber, …

Many people on the Jersey Shore are moving back to reclaim what’s left of their homes and that involves a lot of materiel, in the form of lumber, drywall, tools and other supplies. One resident has noticed, through many personal swipes of the credit card, that retailers like Lowe’s and Home Depot, and supplies manufacturers like OwensCorning and USG, are reaping big profits in the destruction zone. Many independent hardware stores have not yet reopened, likely due to lack of support from a secure home office, so chains continue to cash in on the Hurricane Sandy recovery. For more on this continue reading the following article from TheStreet.

It’s hard to believe it’s been six months since Hurricane Sandy ravaged the Northeast, including the beloved spot at the Jersey Shore where my family has congregated since the 1940s. We were among the lucky; our little 1949 cottage took on 26 inches of water, enough to ruin the downstairs and all of its contents, but many were far worse off, losing their primary residences indefinitely.

The past six months, it’s been tear-out, throw-out and rebuild, and we are still far from being done. We decided to do much of the work ourselves — all but electrical and some of the plumbing — with the help of some Macgyver-like friends. For those homeowners that had flood insurance, the contractor estimates have been coming in at anywhere between 1.5 and 2.5 times insurance proceeds, and that’s if you can find a contractor that’s not already booked solid. Some of those that had no flood insurance have put their homes on the market as is; home prices have not surprisingly fallen sharply, and it’s a buyer’s market. It’s also a sad situation.

Rebuilding is a long and arduous process, which in our case has included at this count more than two dozen working trips to the shore and at least that many to Home Depot (HD), Lowe’s (LOW), and some of the local hardware stores that have begun to reopen. Our Honda Odyssey has become a de facto pickup truck; with the seats removed, you can fit several 4-by-8 sheets of drywall, plywood and underlayment.

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As a value investor, I’ve wondered since day one of the tear-out phase which names might benefit from the massive rebuilding efforts.

Let’s just say that my own credit card has been working overtime at Home Depot, which has a store about 7 miles from our cottage. I’ve been there morning, noon and night. So have many others; the parking lot is always full. The place is stocked to the rafters with all of the essentials; in this case heavy on sheetrock, joint compound, insulation, plywood, and framing studs. Sheetrock and insulation are very popular items. Every home that took on water had to quickly rid itself of both of these at least several inches above the water line, in order to stop the mold from spreading. Sheetrock manufacturer USG (USG) is selling a lot of product in the affected areas, as is fiberglass manufacturer OwensCorning (OC), and plywood manufacturer Weyerhaeuser (WY). Interestingly, there have been no shortages of any needed materials, at least in my experience.

Appliances were also in high demand; most homes that took on water had to throw out all of their downstairs appliances. During the tear-out phase, it was an endless sea of washers and dryers, dishwashers, stoves and refrigerators strewn across front yards. Once rebuilding is complete, there are a lot of appliances to be replaced; which will again bode well for the retailers; Home Depot, Lowe’s, Sears (S) and Best Buy (BBBY) to name a handful; not to mention manufacturers such as Whirlpool (WHR). With a lot of kitchens also in need of replacement, Masco (MAS) whose products include Kraftmaid cabinets, should also be seeing a lot of business in the Northeast.

The refurbishment of homes is just the beginning, at least on our little island, and I’d suspect for much of the Jersey Shore. Given the extent of the damage, many homes, including ours, will be required to be raised above base flood elevation levels.

In a nutshell, if the damage to your home was more than 50% of the value (the replacement cost new, per the tax assessor, which is typically a very low amount as it does not include the land value), the home needs to be raised on blocks or pilings. With flood insurance rates set to skyrocket, especially for homes below base flood elevation levels, there’s extra incentive for homeowners to raise their homes. That will result in the sale of massive quantities of concrete blocks, and other supplies over the next four years, which is how long we have to comply.

We’ve come a long way in the past six months in many of the areas affected by Sandy, but there are still a lot of people without primary residences. We’ve had it easy by comparison.

This article was republished with permission from TheStreet.


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