The U.S. Memorial Day holiday marks the all-but-official beginning of summer. For most Americans, summer means beach vacations, barbecues, and baseball – fun in the sun. However, summer is also a time for natural disasters – for hurricanes, wildfires, heat waves, and droughts.
The National Oceanic and Atmospheric Administration (NOAA) has warned that the North Atlantic is in for an “extraordinary” hurricane season, with more than double the average number of major hurricanes (Category 3 or higher) this year. NOAA said we could see as many as seven major hurricanes, compared to the average of three per season, matching records seen in 2005 and 2020.
While the National Interagency Fire Center (NIFC) expects wildfire season to start off slowly, by midsummer, it forecasts elevated risks of wildfires in southeast Arizona, southern New Mexico, southern Idaho, northeast Nevada, and northwest Utah. Hawaii, where a deadly wildfire destroyed the town Lahaina on Maui last year, is also at elevated risk in mid-2024. Other wildfire experts have singled out parts of Texas, New Mexico, and southern Florida as being at elevated risk this summer.
Source: National Oceanic and Atmospheric Administration (NOAA)
Nor are natural disasters limited to the U.S. In Canada, wildfire season began in April, and our northern neighbor is encountering an alarming number of “zombie fires” – remnants of last year’s fires that smoldered in peat bogs underneath the snow and flared back to start new wildfires when warmer weather melted the snow. The EU, where each of the past 10 summers has successively been the hottest on record, is bracing for a possible repeat, complete with its own wave of wildfires. And in India, at least 77 people have already died this month due to a heat wave that has seen New Delhi temperatures setting a record high of 121.8 degrees.
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Rising costs from natural disasters
Such unfortunate statistics could worsen over time. The number of major natural catastrophes (commonly defined as causing losses of at least $1 billion) has been on a clear upward trend since the 1980s, and they now account for more than 80% of the damage for weather and climate events.
Source: NOAA, National Centers for Environmental Information (NCEI)
Even on an inflation-adjusted basis, major natural disasters are becoming more costly. While this is partly due to an increase in the aggregate wealth of the country, many climate scientists are also seeing major weather events getting more extreme – wetter storms, stronger winds, more intense cold, etc. In 2023, the U.S. set a record for number of billion-dollar disasters (28), which caused aggregate losses of roughly $92.9 billion.
Given this unfortunate trend, businesses that help households, businesses, and communities cope with such events and their immediate aftermath are well-positioned for potential growth in revenues and earnings.
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Power Continuity
Natural disasters tend to provide a viscerally unpleasant reminder of the importance of electricity to every aspect of our lives. High winds can destroy utility poles and transmission lines, while flying objects and floodwaters pose a threat to transformers, substations, and other critical power infrastructure. In coastal areas, saltwater can cause both immediate and gradually escalating long-term damage to various parts of the power grid. This, in turn, can affect not just households, but also the hospitals and communications networks that are critical to disaster response. When natural disasters disrupt the normal flow of electricity, these companies can offer possible solutions.
Generac (GNRC 4.35% ) Generac’s product lines include portable and backup generators for both homes and industry. Its solutions include mobile generator trucks and trailer-mounted generators, as well as power distribution and consulting services.
EnerSys (ENS 1.48% ) EnerSys is also leading provider of backup power solutions that often are critical to effective disaster response and recovery. Its lineup of backup equipment, portable generators, power systems, and batteries tend to be geared more toward institutions and businesses – particularly data centers, communications, and hospitals.
Water supplies
Natural disasters also pose a risk to the uninterrupted flow of clean water. Interrupted power can knock water treatment plants out of commission, and flooding can cause sewage systems to overflow and contaminate water supplies. Companies that can provide temporary water treatment solutions during and immediately after a natural disaster are key to preventing loss of life. Two of them are:
Veolia (VEOEY) This French conglomerate is a global leader in solutions for water reuse, reclamation, and sanitation, and it works with many municipal and corporate clients around the world. Its large portfolio of proprietary technologies enables the company to offer a range of water-related services for areas dealing with natural disasters, including mobile water treatment systems, water-supply tanker trucks, and emergency wastewater treatment solutions. The company also offers consulting services and solutions to help clients prepare for severe weather events.
Xylem(XYL 2.71% ) Xylem is another leading company in the water treatment field that provides mobile water treatment systems. The company also offers products and expertise in the removal of excess water from flooded areas, as well as tools and tests to help verify and monitor water safety standards.
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Temporary Shelter
When homes are destroyed or left temporarily uninhabitable, companies that can manufacture and provide temporary shelter that goes beyond a high school gymnasium or the playing field of an indoor stadium can help communities begin the return toward normalcy as they rebuild. Companies that can assist in such efforts include Skyline Champion (SKY 5.67% ) and Cavco Industries (CVCO 3.88% ). Both are top providers of manufactured (as opposed to traditional site-built) homes and mobile homes. Such shelters can generally be made ready to use in a significantly shorter time, and their lower costs can make them a more viable option for families who have lost their homes.
Cleanup and Recovery
Once the immediate danger has passed, the rebuilding process begins. Many households will turn to hardware stores like Home Depot (HD) and Lowe’s (LOW), but communities looking to clear away the detritus left behind and rebuild infrastructure that was damaged or destroyed will need to seek help from a different set of companies. They include:
Clean Harbors (CLH 0.57% ) Clean Harbors offers a broad range of services related to the cleanup of both natural and man-made disasters. In addition to collection, transportation, and disposal of large volumes of ordinary household and construction waste, the company offers expertise in site (infrastructure, soil, groundwater) decontamination, disposal of hazardous materials and environmental testing. They also offer consulting and services related to risk assessment and emergency preparedness planning.
AECOM (ACM 1.44% ) AECOM is a multinational infrastructure firm that provides engineering, construction, consulting, and support to governments around the world, with expertise in transportation, power, and water-related projects. Among its offerings are a full suite of natural-disaster related services that include risk-assessment and consulting, post-disaster cleanup, recovery management, and rebuilding.
Fluor (FLR 1.20% ) Fluor is another global company known for engineering and construction expertise for complex infrastructure projects. Though it offers a similarly comprehensive range of products and services related to natural-disaster response and recovery, it is particularly known for its work with energy and industrial-related infrastructure projects.
Granite Construction (GVA 3.69% ) Granite’s operations are more focused on the U.S., and they tend to specialize more on transportation infrastructure. In addition to the rebuilding of highway and bridges. Granite is capable of providing quick, temporary repairs for critical infrastructure until more permanent solutions can be implemented.
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Wildfire-related
The costliest natural disasters for the U.S. have historically been hurricanes and severe storms (NOAA defines a “severe storm” as any weather event that produces wind gusts of at least 58 mph and/or hail of at least one inch in diameter, or any tornado). However the National Association of Counties reports that wildfires are the most common type (41%) of federally declared disaster (a designation that qualifies counties and local governments for federal assistance).
Specialized vehicles are often used in fighting wildfires. This includes fire trucks, such as those made by Oshkosh (OSK 2.07% ) and REV Group (REVG 3.87% ), as well as firefighting airplanes and helicopters such as those manufactured by Boeing (BA 1.38% ), Lockheed Martin (LMT 0.65% ), and Northrop Grumman (NOC 2.07% ).
The aerial firefighting vehicles are typically used to disperse aerial fire retardants made by Perimeter Solutions (PRM), which makes PHOS-CHEK, a flame retardant developed by Monsanto. Another manufacturer of aerial flame retardants is Fortress North America, a subsidiary of Compass Minerals (CMP 0.62% ).
Although a sizeable majority of meteorologists, climate scientists, and wildfire experts have cited climate change as contributing to the increasing frequency and intensity of natural disasters, the focus in this Signal from Noise has been on the various industries and companies that provide products and services that help communities and families survive, respond, and recover from such catastrophes – and the investment potential they might represent. As always, Signal From Noise should serve as a starting point for further research before making an investment, rather than as a source of stock recommendations.
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