Protect Your Portfolio From Hurricane Season

By Matthew McCall | April 11, 2007 AAA

The month of June is usually welcomed with opened arms because it signals the unofficial start of the warm summer months. While most people on the East Coast are digging through their garages for their boogie boards and suntan lotion, others are searching for plywood and power tools.

On June 1, 2007, hurricane season is officially underway and will not be over until the end of November. Several recent reports have many in the southeastern portion of the United States on high alert for what could be another rough hurricane season.

2007 Hurricane Season Predictions
One of the most well-respected hurricane forecasters, Dr. William Gray, of Colorado State University and his team of experts are predicting 17 named storms with nine registering as hurricanes. Of the nine hurricanes, Gray foresees five turning into category 3 or higher storms, which have minimum winds of 110 mph.

As a comparison, during the 2005 hurricane season, which saw Katrina devastate New Orleans, there were 28 named storms, 15 of those hurricanes. Of the 15 hurricanes, four hit U.S. coastlines.

Last year the U.S. Atlantic Coast was able to dodge hurricane season completely for only the 11th time since 1945 according to

Gray is not alone in his prediction for an active 2007 hurricane season. Tropical Storm Risk (TSR), a London-based forecaster, has released numbers almost identical to Gray's. The only difference is that TSR predicts four major hurricanes instead of five from Gray.

Joe Bastardi of AccuWeather did not release specific numbers on the upcoming hurricane season, but he did release this statement, "We will not get anywhere near the amount of storms that we did in 2005, but the intensity of the storms we do get will be of major concern."

Rising Energy Prices
After hurricane Katrina hit the Gulf Coast the price of gasoline in the United States jumped to record highs. The situation only worsened when hurricane Rita hit the Gulf Coast one month later. The second storm did enough damage to shut down as much as 14% of the U.S. refining capacity. There were several offshore platforms that did not get back to full production for months after the storms hit.

If the predictions by the experts are correct, a new record high gas is not unfathomable and actually very reachable. One or two major storms in the Gulf will result in not only gasoline, but other energy commodities (oil and natural gas) skyrocketing.

Using Energy to Hedge Your Portfolio
When storms hit the Gulf of Mexico one of the most devastated areas is the offshore oil rigs, located miles from civilization. There are a number of companies that provide offshore construction and repair to the oil and gas industry. Two names that could hedge your portfolio against major hurricanes are Global Industries (Nasdaq:GLBL) and Helix Energy Solutions (NYSE:HLX). Both companies are based in the Gulf Coast region and could be called on in the event offshore oil rigs need repair.

Matrix Service Company (Nasdaq:MTRX) is a unique company that offers repair and construction services not only to the energy sector, but also to the utility, water, and petrochemical industries. A major hurricane in the United States will disrupt oil and gas operations offshore, while onshore the utility and petrochemical companies will be in need of emergency repair, which MTRX offers.

ETF's as an Alternative
Investors that want to hedge their portfolio with a basket of stocks rather than one or two individual plays can turn to exchange-traded funds (ETF). The HOLDRS Oil Service Trust (AMEX:OIH) offers investors a one-stop investment vehicle that is composed of a basket of stocks in the oil service sector. The top holdings are: Schlumberger Limited (NYSE:SLB) and Transocean (NYSE:RIG).

A major hurricane will cause a shutdown of the oil and gas facilities thus resulting in higher prices. The moment this happens, the need for alternative energy hits the headlines and money begins flowing into alternative energy stocks. The PowerShares WilderHill Progressive Energy ETF (AMEX:PUW) will likely be one of the ETFs that attracts the big money.

Finally, once the wind has stopped blowing and the rain has subsided the rebuilding must begin. There are a number of sectors and stocks that could profit from the construction. However, by investing in the PowerShares Building and Construction ETF (AMEX:PKB) an investor gains exposure to all the big names in the industry with one purchase. Stocks in the top five include Caterpillar (NYSE:CAT) and Vulcan Materials (NYSE: VMC).

Wishing and Preparing
Of course, in a perfect world there would not be a threat of hurricanes this year and residents of the Southeast could get a good night's sleep. Unfortunately, we live in an imperfect world and, therefore, as investors we must prepare our portfolios for the unexpected.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

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