It’s no secret that some companies are more in demand when the weather gets colder. And as demand for their services increases, it affects their stock prices.
Last year marked the warmest winter in the 20th century, says Kirk Du Plessis, founder and head trader of OptionAlpha.com. “So, if this coming winter proves to be even slightly cooler than last year, (some) companies might get an added boost during the last quarter of 2016 and first quarter of 2017,” he says.
Here’s a look at companies that stand to benefit from winter’s chill.
Vail Resorts (ticker: MTN). Three financial experts recommended Vail, which operates ski resorts in U.S. mountainous areas.
Says Ryan Wibberley, CEO of CIC Wealth, “Cold, snowy winters mean huge profits for ski resorts,” says Ryan Wibberley, CEO of CIC Wealth. “Vail Resorts is a solid company with strong fundamentals and a great market share.”
In 2015, Vail’s stock outperformed the market from mid-October to the new year, rising more than 20 percent during the period. “If investors believe the ski/snow season will be dramatically improved with colder weather, this company is posed to take advantage,” Du Plessis says.
Dan Grote, a winter sports enthusiast and partner at Latitude Financial Group, considers Vail Resorts a “winter tourism gem” because its three segments, “mountain, lodging and real estate provide a complete package for winter destination vacations and snow sports.” He adds, “The stock has performed very well historically, averaging over 29 percent total return over the last decade.”
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Douglas Dynamics (PLOW). Both Grote and Du Plessis also recommend Douglas Dynamics, founded in 1948. The company outfits commercial vehicles for snow removal.
The stock has jumped 23 percent in a few short weeks, Du Plessis says. Since this company’s main lines of business include snowplows and salt spreaders, there may be more room to run, he said.
“They’re a high-growth company whose stock has soared some 18.26 percent per year on average for the last 10 years,” Grote says.
PLOW’s brands include Fisher, Henderson, SnowEx and Western.
Public Service Enterprise Group (PEG). As people try to stay warm during cold winters, they crank the heat. This means higher bills for customers, which, of course, is good for utility companies.
And there’s another factor to consider.
“The Fed funds futures are currently showing about a 70 percent chance that rates will be increased after the December Fed Open Market Committee meeting. Historically, utilities have been one of the best performing industries during a rising rate environment,” says Bob Johnson, co-author of “Invest with the Fed” and president and CEO of the American College of Financial Services.
Johnson and his co-authors found that from 1966 through 2014, utilities earned 7.9 percent annually when rates were rising, which was the best sector performance outside of energy (11.2 percent) and consumer goods (8.1 percent). Yet utility stocks have been popular with investors over the past several years and bargains in that sector are difficult to find, Johnson says.
“Public Service Enterprise Group is an electricity and gas utility that operates in the Northeastern and Mid-Atlantic. It sells at a discount to the market both on a P/E basis (14.7 versus 23 industry average) and a price-to-book basis (1.5 versus industry 1.8),” Johnson says. “It also has a healthy 3.98 percent dividend yield.”
VF Corp. (VFC). On a frigid winter day, North Face jackets and fleeces abound in almost every crowd. VF Corp. owns dominant winter clothing brands including North Face, Smart Wool and Timberland. “When the temperatures drop, sales of these brands have done very well in recent years and there is no reason to think this year would be different,” Wibberley says. “North Face has been a dominant brand among outdoor enthusiasts for years, but in recent years even the couch potatoes are sporting North Face.”
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Johnson & Johnson (JNJ). The New Jersey-based multinational personal hygiene, medical device and drug company is somewhat of an all-weather stock, but as temperatures drop, sales for its moisturizing products (Aveeno, Neutrogena and Lubriderm) should rise, Wibberley says. “Also, they have a large lineup of flu and cold products such as Sudafed and Tylenol that should have robust sales as more people catch a cold,” he says. “JNJ is fundamentally a strong company.”
Toro Co. (TTC). Toro is another dominant player in the snow and ice removal equipment space that Wibberly describes as “strong.” “Historically, when we see large amounts of snow in the U.S., we typically see a large increase in sales of snow removal equipment,” he says.
Home Depot (HD). Depending on the amount of winter snow, Home Depot could benefit from the sale of snow removal equipment, as well as generators and rock salt for driveways, Wibberley says. “Again, historically, rough winters have translated into sales for stores like Home Depot,” he says. “The fundamentals of Home Depot have been decent, but a really cold and snowy winter could help improve those fundamentals and drive the stock higher.”
Arctic Cat (ACAT). Grote also has his eye on ATV and snowmobile maker Arctic Cat, which has been public since 1990. In the past, ACAT hasn’t been an excellent performer, but the company hired CEO Christopher T. Metz in 2014. Metz, who held the same role at Stanley Black & Decker (SWK) from 1999 to 2005, also served as a managing director of Sun Capital Partners, a large private investment firm with more than $10 billion in capital under management.
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“The share price (on ACAT) is attractive and the dividend yield has been increasing over the past three years,” Grote says.
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8 Stocks to Buy for a Cold Winter originally appeared on usnews.com
