Putting Katrina in Perspective

The storm reminds us what really matters, but it also has portfolio implications to consider.
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A few weeks ago, all we did was complain about soaring gas prices. Then Katrina hit and we realized that there are far bigger issues than the fact that it costs an extra $10 to fill up.

So while you may be thinking things are out of control, just put everything in perspective. Oil prices are still cheaper then they were 25 years ago ($94 adjusted for inflation), and you probably still have a house to go home to at night.

Granted, the financial markets are facing a tumultuous short-term outlook. The Gulf of Mexico accounts for a big chunk of the nation's oil and natural gas production, and without it, people are already suggesting the "r-word" (recession) by year-end.

So it's understandable if you're a bit nervous. Presumably, though, you have a long-term portfolio that was built to weather these unsettling times. But with energy stocks soaring and reconstruction of the Gulf States still ahead, there may be some ways to tweak your portfolio.

But please keep in mind, if your portfolio is not out of whack, then don't mess with it. Don't go chasing returns just because the media says you should. Trust your portfolio and leave it alone.

It's Not Just Gas

While we automatically associate the high price of oil with the local gas station, many other industries are feeling the pain.

To start, winter is coming, and many of us will be shocked at how high our heating bills get his year, says Herb Daroff, a certified financial planner at Baystate Financial Services in Boston.

Then there are delivery companies, such as

FedEx

(FDX) - Get Report

, that will suffer because they need fuel to survive. Same goes for the airlines, which were facing intense pressure even before Katrina hit. Even your cab driversare feeling the pain, so don't be surprised if their fares increase.

The less obvious backlash comes from the lack of discretionary income. That's the extra money you have after you presumably pay yourself (a.k.a. savings) and your bills. If you're spending more on gas and your heating bill, you'll have less money available for the fun stuff, such as traveling, going to the theater or running off to Atlantic City for the night, says Matt McGrath, senior vice president at Evensky & Katz in Coral Gables, Fla.

So companies such as

Harrah's Entertainment

(HET)

and

MGM Mirage

(MGM) - Get Report

will start to see margins squeezed, especially since they both own properties in along the Gulf Coast. (Shares of both firms, along with

Penn National Gaming

(PENN) - Get Report

fell Thursday as traders assessed the damage to Gulf Coast casinos.)

"It's inevitable that high energy prices will start to take out bite out of earnings in some sectors and slow economic growth," says Brad Sorensen, the head sector analyst at Schwab's Center for Investment Research.

That's why companies like

Wal-Mart

(WMT) - Get Report

are struggling right now. Companies that cater to lower-income customers, whose discretionary income is quickly depleted, may have a rough road ahead.

Evaluate Your Energy Level

Prepare yourself for the coming volatility by, first, evaluating your energy holdings. Stocks such as

EOG Resources

(EOG) - Get Report

,

Schlumberger

(SLB) - Get Report

and

BJ Services

(BJS)

have done well over the last few months. So if you started out with, say, 3% of your portfolio in energy stocks, that percentage might be much larger now.

"It might be time to pare back and take money off the table," says Sorenson.

Don't be greedy. You don't have to sell it all, just enough to get your energy portion back in line, and then put that money in other sectors.

Second, consider buying stocks that normally aren't affected by the rising gas prices. The high-end, luxury retailers such as

Nordstrom

(JWN) - Get Report

and

Coach

(COH)

generally do well in this type of environment. Let's face it, if you're willing to pay $300 for a handbag, an extra $10 at the pump is not going to make or break that sale.

Third, whether times are good or bad, people don't stop buying consumer staples such as groceries, tobacco and alcohol, says McGrath. So companies like

Altria

(MO) - Get Report

and

Anheuser-Busch

(BUD) - Get Report

will hold up well. (BUD gets my vote for its constanthumanitarian efforts. The company just shipped 300,000 cans of drinking water down to the Gulf.)

Same goes for health care, suggests Sorenson. "Even if discretionary spending is slow, people still need to buy medication." And with the population aging, it's a good fallback. Check out

Community Health Systems

(CYH) - Get Report

, which runs acute-care hospitals that offer inpatient and outpatient medical services, and

Caremark

(CMX)

, a pharmacy benefit manager that is posed to benefit greatly when Medicare expands its coverage for senior citizens next year.

And with the winter coming, consider stocks such as

Home Depot

(HD) - Get Report

Lowe's

(LOW) - Get Report

, suggests Daroff. While those companies may be losing money on delivery costs, people will be buying more insulation and weather stripping to keep their heatingcosts down this winter. And while no one wants to capitalize on Katrina, shares of both companies rose recently on the expectation that sales will be up because of hurricane repairs.

Granted, the markets may be a bit more disconcerting over the next few months, so some of the above suggestions may help ease the bumps in the road. But remember, as bad it may get on Wall Street, the folks in New Orleans and surrounding environs have it a lot worse.