Harvesting the Wind: A Portfolio 
for the Coming Hurricane Season 
E. Noel Preston, MD 

   The 2006 hurricane season begins in a little more than two months.
Although it's not right to profit from anyone else's misfortune, there's nothing wrong with recognizing the likelihood of upcoming events and choosing to invest in companies that might benefit from those events. That said, what happens during and after a hurricane? 

   Electricity fails, food spoils, and people need food and water.

   Buildings, bridges, and roads are damaged or destroyed, and the ones that can't be rebuilt need to be torn down. These structures will need concrete, lumber, glass, roofing shingles, asphalt and paint. Along with hammers and nails, communities will need bulldozers, trucks, clean up crews, electric circuit breaker boxes, electrical panels, utility poles and the wires they carry, bath tubs, toilets, showers, hot water tanks, light bulbs, groceries, portable toilets, and ready to eat food. 

   Last year, the Federal Emergency Management Agency gave an advance-of-the-event exclusive contract for providing and delivering bottled water after the hurricanes to Lipsey Mountain Springs Water Company, right here in Norcross, Georgia! Lipsey is a privately held company and has less than 20 employees and was physically unable to bottle and deliver literally tens of thousands of bottles of water to the hurricane victims -- so Lipsey contracted with American Water Star Company to help it bottle the water. American Water Star is publicly traded, but at only 2 cents a share and no more than 800 shares a day traded, I would suspect most of the shares are already privately owned. 

   Additionally, Lipsey was unable to deliver all the bottles itself. The State of Florida paid Lipsey $1,600 a day to deliver the water bottles, and Lipsey contracted with local delivery services in Florida to deliver it for $400 a day. Those companies have hired a Washington, DC attorney to sue Lipsey for violating Florida's anti middleman law, which specifies the State is to pay whoever provides the service, and not some middleman who simply arranges the service. Of course, the State of Florida has other things to do after a hurricane than negotiate with a bunch of mom and pop or Luther and Me delivery people. It wants to deal with a single entity, write one check, and get on with other concerns. Where all this will end up is anybody's guess, and people who are curious can Google Lipsey to read more about it. 

   Anyway, the bottom line after all this is that it doesn't look as if investing in drinking water after a hurricane will let you quit your day job. And so, what would be a good company to invest in for an upcoming hurricane season? 

   First, a few ground rules: It should be a company that is making a profit now, before the hurricane season, and not one that depends on something so unpredictable as the weather. At the same time, it should be in a business that will benefit if there is a hurricane. Its stock price should be ascending instead of descending. People who try to buy stocks at or near their 52 week lows are forgetting that there's a reason a stock is cheaper now than it used to be, and the reason is that it's not as valuable now as it was earlier. 

   People on Wall Street talk about "Smart Money" and Dumb Money." Smart money accumulates stock that is going up in price, and distributes (or sells) stock that is going down in price. Dumb money does the opposite: it buys stock that is going down in price, and sells when the stock starts going up. "A" is for accumulate, or ascending, or acumen, which is what smart people have. "D" is for distribution, or descending, or down, or dumb, which is what people are when they claim they are "bottom fishing." Buying a stock at or near its 52 week low is like listening to a "seldom heard" or "rarely heard" symphony. It's just not as good as Beethoven's Fifth, and not worth the bother. 

   Next, I'm getting to be more cautious than I used to be, and don't like to buy a stock with a Price/Earnings ratio (P/E) higher than 20. 

   It has to trade more than 300,000 shares a day, and it has to pay a dividend. I don't care how big the dividend is -- I just think a company that pays a dividend probably has a positive cash flow, and it would be harder for some crooked accountant or CEO to juggle the books. And lastly, whatever profit the company makes from doing more business in a hurricane-afflicted area should have a significant and positive impact on the company's bottom line. If Home Depot does ten times its usual business in Florida or Texas or the Carolinas than usual, will that really have much of a percentage impact on Home Depot's overall earnings from its other locations all over the rest of the country? Maybe so, and maybe not -- and maybe's not good enough. 

   Whatever the stuff is that has to get to the damaged area, it has to get there. And so now I'm thinking about transportation.

   Basically, there are three ways to get things from Here to There: Planes, Trains, and Motor Freight. Planes and trucks use expensive gasoline as fuel. Airlines and freight carriers have labor unions that might disrupt a company's business. Planes and trucks need airstrips and roads and bridges that might be damaged or destroyed. Freight lines might be publicly traded companies, of which there are so many so scattered across the country it would be hard to choose the right one, or again they might be Luther and Me and the pickup truck and not publicly traded. 

   (My nephew is a tree cutter and made over $300,000 in two weeks from Hurricane Wilma, and as his fiancee would say, he's privately held.) So how can you invest in a debris removal company? I've looked, and I don't think you can. There's Waste Management and Republic Services, but last year the overall impact of all the hurricanes made little impact on either company's bottom line. 

   So, that leaves trains. There are basically four publicly traded major railroads: Union Pacific (UNP), Norfolk Southern (NSC), Burlington Northern and Santa Fe (BNI), and SGX Corporation (SGX).

   UNP trades at 94.67, has a P/E of 24.3, and pays a 1.3% dividend.
It is the largest railroad in the country and serves 23 states across the western 2/3 of the US.

   NSC trades at 55, has a P/E of 17.4, and pays a dividend of 1.2%.
It has 21,300 miles of track and serves 22 states and every major seaport on the eastern coast (seaports are on the ocean, and the ocean is where hurricanes come from).

   BNI trades at 85.50, has a P/E of 20.8, and pays a 0.9% dividend.
It has 32,000 miles of track and serves 28 states.

   CSX has 21,000 miles of track, trades at 61.50, has a P/E of 11.9, and pays a 0.8% dividend. It serves 23 states.

   All of the above are near their 52 week highs, and their price charts show they are in accumulation, or ascending in price. 

   One of the things the damaged areas will need is concrete and cement (and yes, they're two different things). Florida Rock (FRK) is headquartered in Florida and makes concrete and cement and something called aggregates, which is needed for highways and heavy construction projects. It has outlets in 9 states and Washington, DC. It trades at 57.40 and has a 22.1 P/E. It pays a 1.0 % dividend and its chart shows a horizontal trend. It's not descending, but it's not setting the world on fire, either. It did benefit from last year's storms and probably will do well this year too. 

   Vulcan Materials (VMC) is from Birmingham, Alabama and produces, distributes, and sells asphalt and concrete. It trades at 88.80, has a P/E of 23.2, and pays a dividend of 1.7%. It has sales outlets in 17 Middle Atlantic states, has bought a new cargo ship to carry the new concrete it's making, and just opened a new concrete production plant in the Mexican Yucatan peninsula. Its price trend is upward. 

   Eagle Building Materials (EXP) is from Houston, Texas. It produces and distributes cement, concrete, and gypsum wallboard. It trades at 65.80, has a P/E of 23.9, pays an 1.1% dividend, and has an upward trend. It benefited from last year's hurricanes and recently had a 2 for 1 split. 

   Sometimes a hurricane damages air conditioning or refrigerating equipment. Maybe all you have to do after a hurricane is to turn the air conditioner or refrigerator back on, but sometimes the unit needs to be repaired or replaced. Lennox International (LII) designs, makes, and markets heating, air conditioning, and refrigerating equipment. It trades at 30.23, has a P/E of 23.2, and pays a 1.7% dividend. Its price is below its 21 day, and even worse, that's below its 50 day moving average -- but all of these are above the stock's 200 day moving average and are slowly rising. A bad storm that damages a lot of equipment might help it, but then again might not. 

   Other possibilities to consider are portable toilet rental companies and private security firms to protect homes and businesses from looters. Natural gas producers and transporters might benefit from increased fuel demands from electric utility companies. Last year, Smith and Wesson (SWB) enjoyed a modest and short-lived bump up in price after hurricane Katrina. 

   The hurricanes are coming, and with just a little advance planning, someone really could harvest the wind. That should take some of the "ouch" out of a high homeowner's insurance deductible. Good luck everybody, and stay dry. 

E. Noel Preston, M.D. is a pediatrician in solo practice in Peachtree Corners. 6063 Peachtree Parkway, Suite 202-A, Norcross. (770) 448-1553. More information can be found at www.PeachtreeCornersPediatrics.com

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