Editor's Note: Jon D. Markman writes a weekly column for

CNBC

on

MSN Money

that is republished here on

TheStreet.com.

Not too long after Hurricane Katrina punished Louisiana and Mississippi last year with 175 mph winds and vast flooding, government and independent analysts figured the property, infrastructure, oil rig and roads repair bill would amount to upwards of $120 billion.

Analysts, including my colleague Jim Jubak, said Katrina could tip our economy into recession, affecting everything from gas prices to grain shipments along the Mississippi. I noted that roughly 15% of all U.S. exports ship through the Port of South Louisiana, the nation's largest.

Cynical investors, meanwhile, salivated at the prospect of billions in rebuilding spending because it suggested profits would descend from the skies upon companies charged with rebuilding the region. But it really hasn't worked out that way.

Both the doomsayers and the speculators were disappointed. Our economy proved surprisingly resilient, so much so that the

Federal Reserve

had to continue jacking up interest rates for nearly a year after Katrina to control economic growth and inflation.

Sure, there were signs of trouble. Corporate profits fell by 4% in last year's third quarter, and GDP growth slipped to 1.8% in the fourth quarter, thanks in part to Katrina's impact. But the economy quickly got back on track. GDP growth hit 5.6% in the first quarter of this year, the fastest rate since 2003. Corporate profits are again growing at double-digit rates. All that even as crude prices have stayed above $70.

Mobile Homes Not Moving

The money has rained down, if not quite in the amounts envisioned. Claims related to the storm ended up costing the insurance industry around $41 billion, and lawmakers kicked in another $20 billion in taxpayer funds.

Even so, few of the companies that appeared likely to benefit from a rebuilding boom actually have, as claims and repairs have dragged on for a year in bureaucratic wrangling and waste. Particularly waste.

Did I mention waste? Combine a dysfunctional Homeland Security department with seat-of-the-pants decision-making, sprinkle in some political pressure, and you have a recipe for truly spectacular squandering. The most dismal example is manufactured housing, which was supposed to be a cornerstone of the government's compassionate response to the catastrophe.

According to a congressional oversight committee, the Federal Emergency Management Administration purchased nearly 25,000 manufactured homes at a cost of $863 million, as well as 1,755 modular homes at a cost of $52 million and 114,341 travel trailers at a cost of $1.7 billion.

A windfall for the mobile-home industry? Au contraire. About 60% of the manufactured homes purchased by FEMA were never actually deployed to the Gulf of Mexico and never will be. Thousands are in staging areas as far removed as New Jersey -- in part because Gulf towns did not want flimsy, unseemly FEMAvilles cluttering up their communities, and in part because they were inappropriate for floodplains.

Now you can guess the problem for the industry. With thousands of unused homes piled up like cordwood, they have flooded the market and driven down prices. And you can forget about a new surge of interest in the companies if the hurricane season ever perks up this year. In a face-saving move, FEMA has designated its excess inventory of manufactured homes as a "strategic reserve." BB&T Capital markets analyst John H. Diffendal noted in a report to clients that the obvious conclusion for this debacle is that one should not count on any FEMA purchases from any hurricanes that might hit the U.S. this season, given the current stockpiles.

In contrast to initial expectations, therefore, the manufactured-home industry has been ravaged in the year since Katrina hit.

Champion Enterprises

( CHB),

Cavalier Homes

( CAV) and

Fleetwood Enterprises

( FLE) are all down 25% to 45% in the past 12 months.

Lessons for the Next Storm

So which companies did win? The only industrial ones that appear to have made out fairly well in the wake of Katrina were giant public-infrastructure concerns, such as

Fluor

(FLR) - Get Report

and

Jacobs Engineering Group

(JEC) - Get Report

; oil and gas refiners, such as

Valero Energy

(VLO) - Get Report

and

Holly

( HOC); regional banks, such as

Iberiabank

(IBKC) - Get Report

of Louisiana,

Hancock Holding

(HBHC)

and

BancorpSouth

(BXS) - Get Report

of Mississippi; and regional insurance broker

Brown & Brown

(BRO) - Get Report

.

Among these, successes were not evenly distributed. Shares of refiners, construction companies and insurers took off like rockets the day after the hurricane and never looked back. Savvy investors appeared to quickly understand that refiners would benefit from constrained supply, large construction companies would earn the bulk of the rebuilding business at lucrative emergency rates and insurers would be able to jack up their premiums.

The banks, on the other hand, declined for a month amid fears that they'd be on the hook for busted mortgages after customers walked away from ruined homes. But government guarantees brought investors back in short order, and local banks benefited from being able to write new commercial and residential loans at higher interest rates.

The lesson for investors and speculators who want to take advantage of the next big storm is pretty clear: Smaller manufacturing and construction companies may appear on the surface to offer the greatest opportunity at time of crisis as their order books are filled. But their size works against them, as they are typically unable to meet demand quickly enough and implode under the weight of government foot-dragging and bungling.

Unfortunately for the region, but luckily for investors, the post-Katrina rebuild in Louisiana and Mississippi will drag on for some time. Let's take a quick look at some of the companies that should continue to benefit.

  • Fluor, up 50% since Hurricane Katrina hit (vs. +7% for the S&P 500 Index) is not cheap at its current perch around $88 -- but it can still be bought by long-term investors on dips to around $82.50. The company reported a blowout quarter in June, with record new orders of $5.8 billion on the strength of its Katrina projects, as well as work for the petroleum and electrical power industries. At a generous price/earnings multiple of 22, even on dips you will be paying up for a premium brand. It's probably still worth it.
  • Valero Energy, up 41% post-Katrina, is also a great long-term way to take advantage of constraints in the nation's supply of refined gasoline. Valero is the largest U.S. refiner and has several major plants along the Gulf Coast that were able to offset a decline in production with higher profit margins. In the second quarter, Valero earned a record $1.9 billion, up 95% from a year ago and 26% more than the first quarter. In the next six months, supply is expected to tighten and margins to swell as new low-sulfur diesel rules, which benefit Valero, go into effect. As refinery capacity continues to lag demand, buy Valero on dips to the $60.50 area.
  • Brown & Brown, up 33% post-Katrina, presents a way to get back at one of the perverse facts of life when it comes to disasters: It seems logical that insurance company shares should get slammed as they pay out claims, but they almost always make out like bandits by raising premiums. Brown & Brown is actually a network of insurance brokers, rather than an insurer, so it makes more money on activity -- and there's been plenty of that. Internal growth was very strong in the last quarter as price conditions improved, and brokerages have all raised estimates for the remainder of the year. Buy these shares at $27.50 to $29 for immediate appreciation if you think that hurricane season will emerge from its slumber this year, or for long-term growth if you like a company that has simply figured out how to mint money.
  • Whitney Holding( WTNY) is the largest bank based in New Orleans, so it was smacked around pretty thoroughly immediately after Katrina hit. Its shares hit bottom after a month, then rose 35% through this week as it became clear that its loan officer has done a prudent job of extending credit. The company blew past earnings estimates in the past quarter and intimated that results should be even better over the remainder of the year as additional disaster relief funds, in the form of block grants to homeowners who lacked flood insurance, will reach the Gulf Coast in the third and fourth quarters this year. It's a buy from $33.50 to $35 as a bet on the long-term rebuild of the entire Gulf Coast region. Whitney pays a dividend-yielding 3%.

As citizens, we can always hope that there will never be another chance to take advantage of lessons learned in the wake of Hurricane Katrina. But as investors, we are now forewarned and forearmed.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Champion Enterprises, Cavalier Homes and Fleetwood Enterprises to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Jon Markman had no positions in stocks mentioned, although positions may change at any time. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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