Rebuilding: After the Storm

09/03/2004 12:00 am EST

Focus:

Jon Markman

Editor, Trader's Advantage

With our corporate offices in Florida, we are extremely sensitive to the personal and financial loss caused by Hurricane Charleyand the approach of Frances. Here, Jon Markman looks at companies poised to participate in the rebuilding efforts in the region.

"The massive rebuilding in the wake of Hurricane Charley provides a simple investment idea: the companies that do the work should show serious profits," says Jon Markman, editor of StockTactics Advisor and columnist for CNBC on MSN Money. "Investors betting on a multibillion-dollar construction rally in the western Florida hurricane zone so far are putting a large number of their chips on building materials, landowners, truckers, mobile-home makers and banks. The region is seeing a fast whir of activity. The hurricane damaged almost half the homes in Charlotte County, a coastal community on the Gulf Coast. About 25%, or 17,000, were destroyed or had very serious damage. Whole neighborhoods were wiped out. In next-door Lee County, officials said 250,000 buildings were damaged. With Hurricane Charley damage estimates ranging from $8 billion to $20 billion, it is a theme that will not blow away quickly.

"Some interesting local companies in the construction supply business are Hughes Supply (HUG NYSE) and timberland owner and forest-products supplier Rayonier (RYN NYSE). Both are relatively cheap, well run, and worth owning distinct from Florida’s woes. Trucking logistics company Landstar (LSTR NASDAQ) has a national business, but its services are in higher demand as heavy construction products and store resupply needs will ramp up more business in the quarter than analysts or the company have modeled. Meanwhile, residential community developers Technical Olympic (TOUS NASDAQ), St. Joe (JOE NYSE), which is Florida’s largest non-public landowner, and thrift BankAtlantic (BBX NYSE) appear prepared to benefit from the storm-related increase in demand for homes and mortgages.

"One company that merits special attention is Florida Rock (FRK NYSE). Unless you’re a contractor or in the middle of a building project, you probably didn’t know there was a serious worldwide shortage of cementthe powdered limestone mixture that mixes with rock, gravel, and water to make concrete. The problem is China and its seemingly insatiable thirst for building materials as it scrambles to build its Olympic venues, not to mention factories, roads, dams, and apartment houses. Florida Rock, one of the largest miners, producers and marketers of cement and rock aggregates in the mid-Atlantic region, has been caught in the middle happy to see higher demand and prices for its products but at the same time not able to supply enough of it and having projects delayed for months. In its July earnings report, Florida Rock reported a 43% increase in earnings per share over the same quarter in 2003 on a 27% increase in sales to $251 million. With a clean balance sheet highlighted by low debt, it looks like a good candidate for continued strength as its home state and neighboring areas rebuild. The stock has moved up a lot in recent days, so wait for it to cool off a bit (perhaps to the $45 area), then set a 12- to 18-month target around $60."

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