By Jeff Reeves, MarketWatch
Shahzaib Akber/European Pressphoto Agency
This summer’s heat wave is no fun for anyone, with kids cooped up inside when they should be enjoying their last gasp of summer, and weary parents just as frustrated by the weather.
But severe weather like the current “heat dome” gripping much of America isn’t just an emotional drain; it can be a financial loss. A recently released study from the London School of Economics and Political Science says urban areas can be hit particularly hard by severely high temperatures because it results in tangible lost productivity.
“Current temperature costs of heat stress to the urban economy are already substantial,” the report reads, estimating that future costs related to a warming climate and severe temperatures could cut London’s economic output by 1.9 billion to 2.3 billion euros ($2.1 billion to $2.6 billion).
But as the saying goes, one man’s crisis is another man’s opportunity. Just as you can make lemonades out of lemons, you can make a cool profit from rising temperatures and severe heat if you know which investments are benefiting from that trend.
Here are a few ideas to consider amid the current heat wave:
United Technologies Corp. owns the Carrier brand, which is by some measures the top HVAC manufacturer in the world. According to the industrial giant’s 2015 annual report , the “Climate, Controls & Security” segment was the largest revenue source, with $16.7 billion — roughly 30% of all sales last year, and larger than either its Otis elevator division or its iconic Pratt & Whitney airplane-engine unit. If you’re looking to tap into a greater focus on the weather and a short-term pop in A/C sales, you could do worse than United Technologies.
If you want a quirky alternative play, Japanese manufacturer Daikin Industries Ltd. /zigman2/quotes/205889555/composite DKILF -5.49% generated more than $17 billion in total revenue last year, and almost all of that was from its air-conditioning business. Of course, while Daikin has been growing aggressively overseas in recent years, it might not be any more of a direct play on the U.S. market than United Technologies. And as a pink sheet stock, Daikin certainly isn’t as liquid.
Those air conditioners are going to be running at full blast day and night, and that means some record-breaking utility bills in areas of the country hardest hit by this heat wave.
In the mid-Atlantic region where the heat index has topped 100 degrees regularly in the past week or two thanks to high humidity, Pepco Holdings and its recent acquirer, Exelon /zigman2/quotes/205982254/composite EXC -1.39% , as well as Dominion Resources Inc. /zigman2/quotes/206853976/composite D -0.12% are all worth a look, thanks their business across high-density areas in Virginia, Maryland and the District of Columbia.
Another couple of options are Consolidated Edison Inc. /zigman2/quotes/207137172/composite ED -0.35% and Public Service Enterprise Group Inc. /zigman2/quotes/201831904/composite PEG -0.60% , which target the metro New York area.
Or, heck, just look at your local weather report and then look at your own utility bill. Chances are that if you’re being charged peak rates or running up an exorbitantly large tab, the other customers in your area are too.
Electric utilities are one thing. But water utilities are another clear play on the recent heat.
Staying hydrated is a big part of beating the heat, and if you don’t have clean water to drink or a reliable source of water for your wilted garden, you’re in big trouble. That’s where water and wastewater utilities like American Water Works Co. /zigman2/quotes/205092314/composite AWK -0.44% and Aqua America Inc. come in.
But the recent heat wave isn’t the only reason to give those stocks a look. Water issues are a constant source of news, whether it be major droughts affecting farmers in California or the water crisis in Flint, Mich., the American people are increasingly thinking about water security, as well they should.
We can moralize over whether a publicly traded utility should take the place of municipal water systems, how we can conserve more water and whether we should have built millions of homes in Southwestern deserts. But if you’re an investor, tapping into the emerging industry of water utilities may pay off big-time. American Water Works’ stock, for instance, is up nearly 40% in the past year and pays a 2% dividend.
(On the next page, read about alternative-energy and water-entertainment stocks.)