SuperModels Community
Join the discussion in the MSN Money SuperModels Community.
SuperModels
Recent articles:
• Readers pick 7 stocks with double potential, 8/24/2005
• 18 stocks for the bull market's last gasp, 8/18/2005
• 9 long-shot stocks that could double in a year, 8/10/2005
More...
| | SuperModels
The rebuilding-Louisiana portfolio
Investors should look to the companies that will do the heavy lifting as Louisiana and other states recover from Katrina's powerful blasts.
By Jon D. Markman
On Monday, investors focused on higher energy prices and insurance-company payouts in the wake of Hurricane Katrina. But as time marches on, attention will shift to rebuilding, the risks that hedge- and pension-fund investors took in buying supposedly low-risk "catastrophe" bonds and the effect of the storm on the fragile U.S. economy.
While the near-term result of natural disasters is naturally negative, they very often lead to infrastructure investments that end up looking like a net positive for their regions. Homes, roads, offices and industrial complexes need to be rebuilt, and the government usually provides tax relief, or outright grants, to pave the way.
Investors will be scouring the horizon this week for companies that will see an immediate, or delayed, benefit from the natural disaster. It may seem heartless, but this is just capitalism's way of allocating financial resources at a critical time to the companies that need it from the sources that have it. Call it Katrina's invisible hand.
An example might be Beacon Roofing Supply (BECN, news, msgs), which does not operate branches in the area but may see its revenues and earnings move up anyway. A Morgan Keegan analyst notes that the storm's destructive winds have torn a lot of roofs off structures. Shelter Distribution, a major distributor being acquired by Beacon, operates two branches in the greater New Orleans area. The analyst said he believes Katrina could potentially push 2006 income at Beacon up by 20 cents to 25 cents a share.
Not just any port in this storm
Everyone immediately worries about the loss of life in a city the size of New Orleans, and economic minds immediately dwell on the loss of Gulf of Mexico oil production. But the area is also home to the Port of South Louisiana -- the fifth-largest port in the world and the largest port in the United States. Yes, it's bigger than New York-New Jersey, bigger than Los Angeles-Long Beach and bigger than Houston. You have to go to Hong Kong, Shanghai, Rotterdam and Singapore to find ports that handle more tonnage.
Something like 15% of all U.S. exports ship through the southern Louisiana port, including much of our Midwestern corn, soybeans, wheat and animal feed. Add crude oil from the Gulf, steel from the Appalachians, iron ore from the northern plains, and fertilizer, gasoline and petrochemicals from area refineries, and you can begin to understand the profound importance of the area to American commerce.
If Katrina causes the port to become unusable, or if it causes the Mississippi to shift significantly at a time when harvests are coming in, we may see an important boost in world agricultural prices. The reaction could be delayed, but watch for moves in soybean giant Bunge (BG, news, msgs)..
Related news and commentary on MSN Money
Katrina's rain could bring long-needed refreshment to Midwestern crops, which would dampen prices. But if there is too much rain and croplands flood, or if the crops can't get to the port, then supply would be diminished and prices will rise. At the same time, the impairment of the port could hamper the supply of ships on the water, boosting spot prices for shipping. If so, look for upward moves in the shares of dry-bulk shippers such as Excel Maritime Carriers (EXM, news, msgs), DryShips (DRYS, news, msgs) and Diana Shipping (DSX, news, msgs).
Turning the lights back on
Power is always a big concern in the wake of a hurricane. One of Florida's major utilities, FPL Group (FPL, news, msgs), moved from $32.50 to $42.50 in the year following the 2004 hurricanes. Utilities suffer damage to towers and transmission lines initially, but that's covered by insurance, and ultimately they tend to get post-disaster rate hikes from regulators, boosting earnings much farther out. The biggest electric utility in New Orleans is Entergy (ETR, news, msgs). It pays a dividend yielding 2.8%, and even though it is trading near an all-time high at $77.39, it may still be a decent value. The energy-savvy brokerage Jefferies put out an interesting report on the efficiency of the company's nuclear power plants last week, upgrading its opinion to "buy" from hold. The reason: Jefferies found that a sum-of-the-parts valuation put the utility's fair value at $87.50 in 12 months, which would be a 16% gain from here, including the dividend
For those who may wish to start thinking more locally, though, very often regional banks and savings and loans, which make loans on new local investments, do well following big storms, as do building materials suppliers. Again, there's something of a delay before a revaluation kicks in. Two regional banks with positive fundamentals and technicals that are based in New Orleans are Whitney Holding (WTNY, news, msgs) and IBERIABANK (IBKC, news, msgs).
|
