PearlandTX (< 20)

Chile Earthquake -- Investment Opportunity

March 01, 2010 – Comments (2) | RELATED TICKERS: ICA , CX

First --- my prayers go out to all of those afftected by the human tragedy which has struck Chile.

Second --- the massive scale of destruction will result in a significant transfer of wealth between those who pay for rebuilding and those who perform the work of rebuilding.

Before Hurricane Katrina hit New Orleans on Monday, August 28, 2005, I was aware of a company called Shaw Group, headquartered in Baton Rouge, LA . Here is a brief profile of SHAW:The Shaw Group is one of the largest engineering and construction contractors for the power generation market as well as a top environmental services firm. Shaw designs, engineers, builds, and maintains fossil fuel and nuclear power plants; provides consulting services to the chemical industry; performs environmental rehabilitation services; manages US government facilities; and manufactures pipe fittings. The group's largest segments are its power unit and remediation/infrastructure arm Shaw Environmental & Infrastructure. Clients include multinational oil companies, industrial corporations and manufacturers, utilities, and government agencies.

Definitely not a pure play on the rebuilding of New Orleans after Katrina. Now let's look at the closing prices of SHAW:

Mon., August 22:  $16.67

Tues., August 23:   16.65

Wed., August 24:   16.68

Thurs., August 25:  16.66

Fri., August 26:      16.19

Mon., August 29:    17.17

Tues., August 30:   18.05

Wed., August 31:   21.10

Thurs., Sept. 1       20.43

Fri., Sept. 2           21.36

Tues., Sept. 6        21.72

Wed., Sept. 7        22.00

Thurs., Sept. 8       22.08

Fri., Sept. 9           23.55

Mon., Sept. 12       23.02

Tues., Sept. 13      21.89

This shows that even if a play isn't pure, it might make a good trade.

Now, here is a thought on how to play this Chilean earthquake.

ICA is the ticker for Empresas ICA which is one of Mexico's top construction firms with its fingers in everything from subways to airports. Operating in Latin America and the US, ICA provides construction, design, procurement, management, and engineering services for a variety of civil and industrial projects including highways, hotels, manufacturing plants, power facilities, and airports. It also operates toll roads through public-private partnerships, runs water/wastewater systems, and builds affordable housing. Majority-owned Grupo Aeroportuario del Centro Norte (GACN) operates more than a dozen airports in Mexico. ICA is divided into construction, infrastructure, housing development, and corporate segments. This company is in no way a pure play on Chilean reconstruction, but neither was Shaw on the reconstruction of New Orleans.

CX is the ticker for Cemex, SAB.  Headquartered in Mexico, it is the world's largest cement manufacturer/distributor.  Unfortunately, 40% of their revenues come from North America and another 40% come from Europe.  They are levered more to the worldwide construction cycle than Chilean reconstruction, but boy is the stock easy to trade.If these are the most available, liquid way to play the Chilean earthquake, they just might pop 5 or 10% in the near term with a 30% upside within 12 months.

I think the most profitable answer is likely to be ICA. If you can find a way to economically trade in Argentine pesos on the Merval in Buenos Aires, you will undoubtedly find a more pure play, but I don't exactly want to overcome that much friction to make a few bucks on the earthquake.