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-fund 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 benefit from the natural disaster. It may seem craven, 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 - Get Report), which doesn't operate branches in the area but may see its revenue 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 locations 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.
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 - Get Report). Katrina's rain could bring long-needed refreshment to Midwestern crops, which would dampen prices. But if there's 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), DryShips ( DRYS) and Diana Shipping ( DSX).
For those who may wish to start thinking more locally, 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 Louisiana are Whitney Holding ( WTNY) and Iberia Bank ( IBKC - Get Report). After the big hurricanes in Florida last August, a few of the major mobile-home manufacturers did well as merchandise was ordered for temporary housing. Fleetwood ( FLE) went from $10.60 to $15.50 in a few weeks even though its chart at the start looked dreadful (and strangely enough, much like it does now). Another company in the sector is manufactured-housing specialist Champion Enterprises ( CHB), whose shares have likewise been in the doldrums. Shares moved up 30% after the Florida storms last year. Of course, nonmanufactured housing also tends to get a big boost following hurricanes, as we saw with Florida-based resort builder Bluegreen ( BXG) and homebuilder Technical Olympic ( TOA) last year. The safer bet, if there is such a thing, may be the homebuilders' suppliers. These include timber providers such as Rayonier ( RYN), which happens also to pay a nice 4% dividend; concrete and cement providers such as Florida Rock Industries ( FRK), which yields 1.2%; and fast-growing distributors such as Building Materials Holding ( BMHC). All have operations in the area, and you can bet their salesmen will be making calls once the wind stops howling. The Mississippi River can get seriously messed up in a big storm, and when the clouds clear, engineers may discover that bridges, freeway overpasses and other major pieces of roadway infrastructure must be retrofitted or replaced. A major bridge builder serving the Southeast is small-cap Michael Baker ( BKR), which is based in Pittsburgh.
The company also has the advantage of being a big player in the building and reconstruction of oil-drilling platforms (not to mention the rebuilding of Iraq). Among the much-larger companies that undoubtedly will have a hand in the reconstruction effort will be engineering-services provider Fluor ( FLR - Get Report) and mid-cap construction contractor Jacobs Engineering ( JEC). Smaller but still-mighty companies to consider for their ability to either rebuild oil-drilling platforms or roadways are Louisiana-based Global Industries ( GLBL) and Foster-Wheeler ( FWLT); for underground reconstruction of fiber-optic lines or electrical power, one of the area's powerhouses is Florida-based construction-services provider MasTec ( MTZ).