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Sandy spending hopes drive rally for recovery companies

A Lowe’s employee helps a customer at a Lowe's store in Quincy, Mass. It has been estimated that reconstruction spending might equal 80 per cent of the total economic losses caused by Sandy.


Hurricane Sandy has caused tens of billions of dollars in damage up and down the U.S. East Coast, but the recovery and reconstruction spending that will follow could pump an almost equal amount right back into the economy, driving a rally for some stocks as markets reopened on Wednesday.

Companies like environmental cleanup specialist Clean Harbors, building supply chains Home Depot and Lowe's, building products makers Owens Corning and Beacon Roofing and generator manufacturer Generac Holdings surged in early trading, on the assumption that the recovery from Sandy will take years and boost sales.

Lumber futures also soared, hitting daily limits and shutting trading, on assumptions about demand.

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Economists and insurers call the phenomenon "demand surge," or the increased cost to repair or replace damaged property after a disaster, when people are competing for a limited supply of resources in a way that pushes prices up.

University of Maryland professor Peter Morici estimated this week that reconstruction spending might equal 80 per cent of the total economic losses caused by Sandy.

"[It's] very hard to predict how [the storm's effect] will play out, but it generally leads to a little increase in business ... this is going to be a very big project in terms of the size of the storm," Sandy Cutler, chief executive officer of manufacturer Eaton Corp., said on a conference call Wednesday.

At last count nearly six million customers were still without power due to Sandy, which took dozens of lives and left many waterfront communities in ruins.

One early winner, if such a thing is possible at a time like this, is the freight industry. Airport and rail closures have forced companies like drug manufacturers to seek alternative methods of transport to get products to market.

"This is probably close to a $2-billion revenue opportunity for truckers," said Noel Perry, principal of Transport Fundamentals in Cornwall, Pennsylvania. "It's a pricing opportunity because there are shortages and because products need to be expedited."

Though it is far too early to know precisely what damage Sandy has done, early estimates suggest insured losses of anywhere from $5-billion (U.S.) to $15-billion and total economic losses from $20-billion to as much as $45-billion.

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Shares of insurers came under some pressure as trading reopened, with the likes of Travelers Cos. Inc., Chubb Corp. and Allstate Corp. all down early on fears they could be among the most exposed to losses.

But analysts said there was so much extra capacity now in the insurance industry, the losses were unlikely to do much more than slash fourth-quarter earnings. Morgan Stanley analyst Gregory Locraft cut earnings estimates for property insurers an average of 26 per cent based on the expected cost of Sandy.

"[Property and casualty] carrier stocks initially fare worse as the impact of losses is digested but then outperform as higher P&C pricing power becomes a focus," Mr. Locraft said in a note to clients on Wednesday.

Some retailers were also struggling Wednesday to get all of their stores reopened, in some cases because of physical damage and in others because they simply could not get staff in place.

Sears Holdings said it still had 66 stores closed as of Wednesday morning, with plans to hook some stores up to generators to get them open.

Similarly, Wal-Mart Stores Inc. still had 44 closures in six states, though it was hoping to have most of them open by the end of the day.

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"We've discovered electricity is one of the most needed commodities right now, and we want to open our doors so our members and guests can recharge necessary items and communicate with loved ones," said Greg Cathey, vice-president of the northeast region for the company's Sam's Club unit.

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