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Winners and Losers in Sandy Recovery

Stocks in this article: HD WHR ALL CB TRV

The Losers

Of course, the aftermath of such a major event cannot benefit all sectors of the market. Rebuilding for the sake of rebuilding can never be completely positive: If it was, we could simply destroy developed areas on our own without waiting for the next natural catastrophe. Some of the clearest examples of potential downside can be found in insurance companies with significant exposure to the east coast market.

Given these scenarios, additional downside should be seen in Allstate (ALL), which reported first quarter profit declines of 7.4% on higher claims from natural disasters. Last month, Allstate issued a warning for investors, explaining that catastrophe losses would cost the company $359 million. This compares negatively to the $259 million in costs seen last year. Underwriting profits at Allstate's liability unit fell 12% to $458 million for the reporting period, further complicating the company's position in the sector.

Some of the biggest sector negatives have been seen in Chubb (CB), which reported fourth quarter profit declines of 77% on higher costs related to hurricane Sandy. More recently, the company reported stronger earnings per share and revenue in the first quarter, with both numbers topping analyst estimates. But the events of last year show some critical vulnerabilities in the company and should give some investors pause in coming quarters.

Similar negatives have been seen in Travelers (TRV), which saw Sandy-related losses (pre-tax) of more than $1 billion. The drag in net incomes created declines of more than 50% in the fourth quarter of 2012. First quarter earnings did manage to post a gain of 11% but it is clear that anything short of a catastrophic event would have been viewed as a positive for the weakened company. So, while we have seen something of a turnaround in both Chubb and Travelers, any major rallies in these stocks should be viewed with some level of skepticism.

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