Protect Your Portfolio From Hurricane Gustav

THE FINAL NUMBERS - FOCUS ON GUSTAV

NEWS: The major indices shrugged off the strengthening of Hurricane Gustav and closed in the green today. The Dow ended with a gain of 89 points or 0.8%. The S&P 500 also gained 0.8% or 10 points on the session. The NASDAQ rallied 20 points or 0.9% as light volume as again a major theme.

THE BOTTOMLINE: Another light volume day for the market, but there was news that could greatly affect stocks in the coming days. Reports that Hurricane Gustav could be making its way into the Gulf of Mexico as a potentially very damaging storm sent energy futures higher. The good news is that the stock market shrugged off the spike in oil to finish the session higher. Oil closed the day higher by $1.88 to close at $118.15/barrel. At one point during the session, crude nearly eclipsed the $120 level as fears over the potential hurricane were heightened.

Of course nobody knows what the ultimate fate of Gustav will be, but there is no lack of meteorologists giving their two cents. Today I was a guest host of the noon hour on Fox Business Network and of course we discussed the hurricane. Joe Bastardi of AccuWeather predicted that Gustav could become more powerful than most are expecting and that it could result in a category 4 or 5 storm. He compared it to Katrina and Rita of a few years back, both of which did major damage to the Gulf region. I hope for everyone’s sake he is wrong. Keep in mind he is a meteorologist and we all know the accuracy of that profession.

One of the reasons the market got a boost today was the durable goods number that hit the wires before the opening bell. The market was expecting an increase of 0.1% and the release showed a gain of 1.3% due in large part to more than expected big-ticket orders. The July number matched the June number and is the best since December of last year. This is just another sign the US is not going into a recession.

McCALL’S CALL - HURRICANE INVESTMENTS

NEWS: Which investments will benefit from a hurricane and how can you protect your portfolio from a potentially devastating storm? This has always been a subject that many feel is not politically correct, but I continue to touch on it when major disasters occur throughout the world. The reason I do not back down is because I view the situation strictly from an investment side and nothing else.

THE BOTTOMLINE: In 2005 when Hurricane Katrina ravaged New Orleans and surrounding areas it was heart breaking to watch from afar. However, as far as my clients are concerned, I need to be making sure their portfolios are not negatively affected by the disaster. My plan of action was to put together a list of investments that could be potential winners during a major hurricane. This list will be similar to the one I will be putting together for my clients this evening in preparation for Hurricane Gustav. Of course the usual suspects make the list: natural gas and oil futures, energy stocks, infrastructure stocks, and others I will share exclusively with clients of PFG.

For example, one month after Hurricane Katrina made landfall the Natural Gas Index (composed of a basket of natural gas stocks) rose 15%. Within the S&P 500 the top performers one month after Katrina hit included a basket of energy-related stocks such as Southwestern Energy (SWN) and Chesapeake Energy (CHK), both up over 30%. The second best performer of the NASDAQ 100 was Foster Wheeler (FWLT), the infrastructure company. But I believe the real values are in the small and mid-cap stocks that fly under the radar. For example, Matrix Service (MTRX) rose 37% as money made its way into the company that provides repair services to natural gas and power industries.

Again, I do not want you to be cheering on a hurricane for a potential rise in related stocks, but that being said, you must be realistic and protect your portfolio from potentially harmful situations. I consider the strategy an insurance for your portfolio.

Subscribe by RSS Subscribe by Email