Weather Updates

Hurricane may help auto sales

roeder report

David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: November 4, 2012 2:50AM

Can anything good come out of a devastating hurricane? In the Northeast, the horror of Sandy will remain for years, but for people there and across the country, there’s something else to consider: Sandy is an investment opportunity.

The economic record shows that disasters have an impact on people’s spending, but it’s short-lived. People rally and rebuild, spending money they couldn’t in the disaster’s immediate wake. Even before the hurricane, home remodelers were reporting gains in business and they expect the trend to accelerate in the Northeast, where insurance settlements are soon to hit on a huge scale.

That bodes well for Home Depot (HD), Lowe’s Cos. (LOW) or Wal-Mart (WMT). Even the home builders could get a boost.

But Wall Street already has seized on some of those ideas. Another post-hurricane play could be the auto sector, where sales lately are strong. Think of all the people who have to replace hurricane-damaged wheels.

Analysts at Sterne Agee point to Ford Motor (F) as their top pick in the sector. Its latest earnings topped the mark in the estimate game, and North American sales were exceptionally strong. Sterne Agee’s Michael Ward has “buy” ratings on both Ford and General Motors (GM), which also had better than expected earnings.

Another possibility is parts supplier BorgWarner (BWA), where the shares have been hit by a sales decline in Europe. Better results in the U.S. could send the stock toward Ward’s price target of $82. They closed Friday at $66.35.

EXELON LIGHTS UP: Chatter on the financial websites erupted last week with Exelon’s (EXC) release of its third quarter earnings. The utility fell far short of Wall Street expectations with its earnings of 77 cents a share, vs. $1.12 per share a year ago. Some analysts cut the rating on the stock and speculated that Exelon’s dividend, rich even by utility standards, might be at risk.

Casting a different vote is Zacks Equity Research, which found the results ahead of its own estimates. It said most of the earnings decline had to do with costs from the company’s merger with Constellation in March.

Some are concerned that Exelon is cutting back on upgrades to its aging nuclear power plants and investments in solar technology.

Zacks is putting more weight on ongoing cost savings from the Constellation deal. It has a “hold” rating on the shares.

Note that while the company upped its earnings guidance for the year, that was before the damage from Hurricane Sandy could be assessed. That estimate should come down again.

COSTCO PREMIUM: Michael Keara, analyst at Morningstar, believes in Costco Wholesale (COST), the warehouse retailer, because its business model confers a lot of stability to its financial results. He said in a report that the stock deserves to trade at a premium to other mass merchants, even though the outlook for consumer spending in 2013 is mixed.

With its membership fees, Costco can book nearly all its profits 12 months in advance. It allows the company to sell two staple items, food and fuel, at essentially zero profit to build traffic for other merchandise. Keara said Costco quietly has become the third largest food seller in the United States.

He said that even during the recession, 86 percent of Costco cardholders renewed their memberships and that it appears the company draws from customers who have high credit scores. “We think Costco’s long-term durable competitive advantages should deliver sustained double-digit earnings per share growth and drive the share price toward our $116 fair value estimate,” Keara wrote. COST closed Friday at $96.12.

CBOE EDGE: The latest earnings at CBOE Holdings (CBOE), owner of the Chicago Board Options Exchange, showed how it depends on those options contracts it can trade exclusively, such as its Standard & Poor’s index business and the VIX products, the stock market’s “fear index.”

Latest market share explain the CBOE’s situation. In total options market share, which includes the exclusive products, CBOE is the clear leader among the 10 options exchanges, with a 24.39 percent share in October, said the Options Clearing Corp.

But for equity options, those contracts on particular stocks that can trade anywhere, CBOE was in a dogfight in October to hang on to second place in market share. It had 18.2 percent, behind the Philadelphia exchange and just ahead of Amex and the International Securities Exchange.

CLOSING QUOTE: “[O]ur best guess is that should the president win re-election, the immediate reaction by Wall Street would be a selloff followed by an on-again, off-again rally into late November that is hampered with tax-related selling. A win by the challenger is expected to offer a different blueprint, one that more closely follows the Reagan win in 1980. Stocks rallies from November to April following Carter’s defeat before running into problems later in 1981.” —Bruce Bittles, chief investment strategist, Robert W. Baird & Co.

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