Every winter, without fail, there is an epic snowstorm or two that dumps mounds of snow and conjures up profound wind in the Midwest. That intense snowstorm, despite the best intentions of local agencies, usually does considerable damage to roads, cars and homes in some form. As the chaotic weather spreads to the East Coast, disaster scenarios spread to the TV channels, Facebook (FB), Twitter (TWTR), Snapchat and Instagram.
Using the latest storm as a prime example, the fear in the streets along the East Coast among folks that they could lose access to food, water and electricity for days has taken hold. In turn, that has led to what amounts to rabid dogs entering Wal-Mart (WMT), Target (TGT), and Home Depot (HD) stores to stock up on supplies. Even I must admit arguing over a bag of ice melt with a punk kid in Lowe's (LOW) yesterday morning. I proceeded to snatch it from his hands and walked away, upset already because I was away from my desk in the pre-market.
And as all of this ridiculousness unfolds, rest assured there will be headlines encouraging investors to gobble up "snow trades." Let me be very, very clear on something: there is no such thing as damn snow trades, long, short or whatever your investing preference. One single day of winter hell caused by Mother Nature will not make or break a quarter for Home Depot, Lowe's, Toro (TTC), or Generac (GNRC) and salt suppliers. On the contrary, there are snow investments. Here are several of the differences:
Buy stock in a company like Home Depot or Lowe's because snow is falling. No historical fundamental analysis is done on the impact snow activity has had on the business in the past. Hence, one wonders why they lost money on a snow trade inside of two days and 24 inches accumulating outside. The person on the other side of trade did their homework and realized the snow was a negative event to sales and margins.
Buy stock in a company like Toro or Generac because snow is falling and you think these companies will issue statements two days post epic storm voicing upbeat comments on the quarter and a stock price rise inducing EPS guidance lift. This rarely ever happens -- only in extraordinary weather circumstances such as Hurricane Sandy.
You actually study recent weather patterns and projections for the rest of the winter and make a wager on a better-than-expected quarter, or worse than planned, due to sales (or lack thereof) of certain products. My experience has shown that it's best to go with winter gear suppliers (long) rather than large retailers that probably sell non-winter merchandise as well.
You fully comprehend that snow does not mean bumper sales for Home Depot or Lowe's. In fact, it could hurt their results by tempering demand for the outdoor patio products and other spring items that tend to arrive post-Christmas. A year ago, Home Depot's fourth-quarter was weighed down to the tune of $100 million from lost sales due to inclement weather, same for Lowe's. As a result of this firm understanding, you are willing to sit tight on investing in storm activity.
My best investment on snow right now: Toro. I think the company's order trends in the fall were strong amid memories of last year's brutal winter and current reordering demand has been solid. On the flip side, if storm activity persists into February, I would be quite concerned on the quarter from a Macy's (M) or Gap (GPS), both of which are showing spring items in their stores that would need to be marked down at a detriment to gross margins.
It's Apple Earnings Day
I don't think we are going to get a ton of guidance from Apple (AAPL) on anything on its earnings call, per the usual. But I think we could get the next layer of clues on how it plans to leverage Beats. Apple only mentioned the company twice on its October earnings call, and now is the time to share a little on the vision for a brand that Apple spent $3 billion on. I expect a host of new Beats hardware to hit the market this year to go along with a revamped streaming service, all of which will be accretive to Apple's bottom line.