Original Link | DailyReckoning by ZACH SCHEIDT
As the floodwaters rose in Texas and Florida, the pictures started rolling in.
That’s the thing about social media today. We can all have access to a first-hand view of just about any major event or issue around the world.
I’m sure you saw the pictures of cars and trucks with water all the way up over their hoods.
And while I’m sure your first thought was for the safety of all the many people who were displaced by the storms, it’s now time to take a look at the long-term risks and opportunities that hurricanes Harvey and Irma brought to our financial markets.
Today, I want to show you a tremendous opportunity that most investors haven’t fully figured out yet. So let’s get started…
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A Flooded Market for Used Cars
Hopefully those pictures of underwater cars and trucks set off alarm bells in your mind.
While the numbers are still adding up, some analysts expect 500,000 auto claims from Hurricane Harvey.1 That number could easily double as claims start coming in from Hurricane Irma’s devastation.
Unfortunately, in a few months, tens of thousands of those water damaged cars will be featured on used car lots. And unless you look very closely, you won’t know the difference between a quality used car and one that has been battered by a category 4 hurricane…
Last week, I even heard a consumer advocate talking about a practice called “title washing.” Using this technique, unscrupulous used car dealers can alter the documents to make it look like a car had no water damage. So even if you do your homework, you could still be buying a lemon!
It still makes more financial sense to buy used cars — and just make sure that any vehicle is thoroughly checked out by a trusted mechanic before purchase.
But as horror stories of consumers getting ripped off hit the wires, more U.S. consumers will opt for buying new cars rather than used cars. That alone will drive strong demand for new cars as car buyers sidestep the risk of buying used cars that could be damaged by floods.
And don’t forget, with up to 1 million cars damaged by flood, the overall demand for replacement cars will naturally lead to higher new car sales. That sets up a big opportunity for investors that are paying attention.
A Resurgence of Growth Should Drive Auto Stocks
When I look for excellent investment opportunities, there are a few characteristics that are very important to me.
First, I want to invest in stable companies with low levels of risk. That way I can protect my capital against potential losses.
Second, I want to invest in companies that have opportunity for growth. This helps me generate big returns for my hard-earned money.
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Third, I want to invest in companies that pay me a nice dividend. That way I can collect cash on a regular basis and use that for expenses, or to invest in new shares.
Today, the U.S. auto manufacturers have all three of these features. And the two recent hurricanes are now providing a catalyst for these stocks to trade sharply higher.
Here’s the best part…
U.S. automakers Ford Motor (NYSE:F) and General Motors (NYSE:GM) have been in a wide holding pattern for the last few years. That’s because investors are skeptical about future growth. Both companies have generated very attractive profits. But their stock prices are relatively low because investors are skeptical about whether Americans will keep buying new cars.
Well, hurricanes Harvey and Irma should quickly remove that skepticism.
After all, there are an additional 1 million cars to replace in Texas and Florida — along with a consumer tend that will be shifting away from used cars and toward new vehicles.
Add that to a strong job market and low interest rates, and you’ve got a great scenario for these two stocks.
Oh, and don’t forget, Ford pays a 5.2% dividend yield and GM pays a 3.9% yield. So both of these stocks will add money to your account while you wait for shares to move higher.
If I were you, I would jump on these two opportunities before other investors figure out just how attractive these stocks are. In a few weeks, shares should be much higher. At that point, you’ll either be sitting on a great profit, or you’ll be on the sidelines wishing you had picked up shares at a much lower price.
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