3 Stocks That Benefit When Disaster Strikes

Potential disasters lurk everywhere. Consider Campi Flegrei, a super volcano that lies west of Naples. Popular imagination is more familiar with mountain volcanoes such as Mount St. Helens, whereas Campi Flegrei is a “large caldera” type — a shallow but huge dip in the ground.

Scientists believe Campi Flegrei’s last eruption 39,000 years ago was a climate-changing event. Today, 360,000 people live in its vicinity and based on seismic and geological studies, scientists think it’s primed to blow again soon.

Disasters are an unavoidable part of the human condition, and cleaning up in their wake is big business.

Last year, between earthquakes, hurricanes and all the other calamities that can strike at a moment’s notice, natural disasters caused more than $175 billion in damage around the world. Last year was actually tame in terms of disaster-related costs. The 2011 earthquake and tsunami in Japan are estimated to have cost $300 billion, while the Deepwater Horizon cost roughly $100 billion alone.

Disaster response and remediation are moneymaking endeavors, even spurring the term “disaster capitalism.” That’s why it makes sense to have stakes in companies that make disaster-struck areas livable again.

Clean Harbors (NYSE: CLH) is a good case in point. Specializing in hazardous waste disposal, the company typically generates slow but steady growth in “good” years, getting rid of the nasty waste that is a byproduct of industry.

For example, revenue grew 8% year-over-year in the most recent quarter as demand for what are essentially routine oil cleanup services rose. After the Deepwater Horizon accident, though, revenue shot up from $1.07 billion in 2009 to $1.73 billion in 2010 as Clean Harbors played a big role in cleanup efforts.

Another company that does a steady business between disasters, then spikes when one strikes, is Generac Holdings (NYSE: GNRC). Generac makes a variety of engine-powered products, ranging from the portable lighting systems you see at construction sites to residential power washers. The company’s bread-and-butter products are generators.

Reaping sales from standby generators used for home backup power to large commercial units, the company has steadily grown its business as everyone from homeowners to supermarkets prepare for the worst. But sales really spike when disaster strikes, since electrical power is often one of the first services lost in an emergency and there are always plenty of folks who don’t have generators handy.

You also can’t go wrong with retailers like Home Depot (NYSE: HD). The home improvement store is thriving from the do-it-yourself boom. And besides, most consumers would rather not call an expensive plumber or electrician whenever a routine problem crops up. Another tailwind for Home Depot is the resurgence of the housing market.

Home Depot also has a history of being generous to its stockholders, returning about 25% of its market cap in dividends and share buybacks. The company’s shares really spike when a hurricane comes to town, as folks board up windows and start repairing the damages.