Rebuilding Buys

09/09/2005 12:00 am EST

Focus:

Jon Markman

Editor, Trader's Advantage

"As time marches on after Katrina, investor attention will shift to rebuilding," notes Jon Markman. "It may seem craven, but investors will be scouring the horizon for companies that will see benefit from the disaster." Here, he offers an exceptional overview of rebuilding buys.

"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. An example might be Beacon Roofing Supply (BECN NASDAQ), which does not operate branches in the area but may see its revenues and earnings move up anyway. Shelter Distribution, a major distributor being acquired by Beacon, operates two branches in the greater New Orleans area.

"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 ASE), DryShips (DRYS NASDAQ), and Diana Shipping (DSX NYSE).

"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 NASDAQ) and IBERIABANK (IBKC NASDAQ).

"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 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). In addition to Fleetwood (FLE NYSE), another company in the sector is manufactured housing specialist Champion Enterprises (CAV NYSE), whose shares have likewise been in the doldrums. Its shares moved up 30% after the Florida storms last year.

"Of course, non-manufactured housing also tends to get a big boost following hurricanes. The safe bet, if there is such a thing, may be the homebuilders' suppliers. These include timber providers such as Rayonier (RYN NYSE), which happens to also pay a nice 4% dividend; concrete and cement providers such as Florida Rock Industries (FRK NYSE), which yields 1.2%; and fast-growing distributors such as Building Materials Holding (BMHC NASDAQ). 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 ASE) based in Pittsburgh. It 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 will undoubtedly have a hand in the reconstruction effort will be engineering-services provider Fluor (FLR NYSE) and mid-cap construction contractor Jacobs Engineering (JEC NYSE).

"Smaller but still-mighty companies to consider for their ability to either rebuild oil-drilling platforms or roadways are Louisiana-based Global Industries 
(GLBL NASDAQ) and Foster Wheeler (FWLT NASDAQ); for underground reconstruction of fiber-optic lines or electrical power, one of the area's powerhouses is Florida-based construction-services provider MasTec (MTZ NYSE)."

Related Articles on