Just when we thought the stock market was catching a break, it now has the hurricane season to contend with. The Dow popped for the seventh straight day last week, offering hope for a sustained rally ahead. However, with the Atlantic hurricane season particularly stormy this year, it’s probably apt to be thinking about stocks to sell.
Meteorological experts forecast the upcoming Atlantic hurricane season in 2024 to be more challenging than in past years. The likely uptick in the frequency and intensity of storms should compel investors to batten down the hatches and review their portfolios. Stocks, particularly in the insurance, real estate, and utilities sectors, are disproportionately impacted compared to others. That said, three stocks to sell are likely to stumble following heightened hurricane activity.
Stocks to Sell: Travelers Companies (TRV)
Travelers Companies (NYSE:TRV) is a leading U.S.-based property and casualty insurance company. It’s a stock that’s been mostly in favor by investors over the past several years due to its consistent performance. TRV stock was among the big gainers last year, delivering a 22% total return for its investors, which has many questioning its current valuation. Wall-Street analysts assign a consensus ‘hold’ based on 14 ratings with 0.5% downside risk.
Though the firm has executed well over the past several months, the hurricane season could impact its top-and-bottom-line results. During hurricane seasons, the company will likely face higher risks of claims due to storm-induced damages. Moreover, managing these claims could potentially drain the firm’s internal reserves, impacting its financial stability.
I think we saw a trailer of that in TRV’s first-quarter (Q1) results, which fell short fell short of analyst forecasts, materially impacted by catastrophe losses predominantly from wind and hail. Additionally, net premiums earned were down to $10.1 billion for the quarter, missing analyst estimates by $80 million.
Simon Property Group (SPG)
Real-estate-investment-trust (REIT) Simon Property Group (NYSE:SPG) has been criticized over the years for focusing on retail real estate despite the proliferation of eCommerce. SPG specializes in shopping malls and retail outlets, which have been declining in popularity over the past decade. In addition to the secular headwinds, it now has the crippling hurricane season to contend with.
With an extensive portfolio of properties located in areas most vulnerable to hurricanes, SPG is in trouble. Hurricanes can cause substantial damage to malls and retail properties, weighing down the bottom lines and financial flexibility of REITs such as SPG. Moreover, the aftermath of hurricanes will likely impact property values and increase insurance costs, affecting profitability. Financial flexibility is incredibly important to SPG, especially considering its proportion of debt to total equity, which stands at 726%.
Furthermore, SPG is far from being the cheapest REIT at this point. After a healthy run-up last year, the stock’s now trading at 8.50 times trailing-twelve-month sales, 96% higher than the sector median.
Progressive (PGR)
Progressive (NYSE:PGR) is a top auto insurance company that’s solidified its position among the leading players in its niche. Despite the hotly competitive auto insurance market, the firm grew at a remarkable pace last year, backed by robust premiums and policy-count growth. However, the hurricane season and the broader economic challenges could potentially play spoilsport in the upcoming quarters.
Progressive will likely face challenges during the hurricane season due to increased claims from widespread damages. Consequently, it must adjust its policy terms and premiums in response to the hurricane’s impact. To its credit, though, it has effectively prepared for the impending season by renewing its general aggregate reinsurance and purchasing additional, specific hurricane season coverage. However, considering the severity of this year’s hurricanes, things might go differently than planned.
Furthermore, PGR stock’s valuation seems bloated. With a current price-to-earnings (P/E) ratio exceeding 20, trouncing the sector median by 120%, the stock is far from cheap.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.