Cramer: Let's Handicap Hurricane Harvey's Best Stock Bets

 | Aug 28, 2017 | 7:35 AM EDT
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No two storms are alike -- nor three or four, for that matter.

We can look back at storms to see their impacts on stocks, but it is so mixed that it's hard to make any analogies. That said, I have attempted to put together a worst-case scenario for the insurers using Hurricane Katrina -- the worst natural disaster in U.S. history, with an unequivocal $100 billion price tag -- to make a judgment about the overall losses and the impact on the group that could be produced by Hurricane Harvey.

But before we get to that, let's figure out the impact on the oil-and-gas industry and whether any money can be made off it.

First, the U.S. has become a radically different place from just a few years ago. These days we export about 5 million barrels of oil a day, including 3 million barrels of refined product. Let's say 30% of that product goes off-line, a reasonable assumption.

That should jack up the price of refined product considerably. Valero Energy Corp. (VLO) is the single most dominant play in this space, and on its website it says it is not experiencing any material shutdowns. There should be an immediate spike to its earnings. The rest of the refiners are too difficult to gauge. It's the natural short-term trade considering it has the flexibility to take its product's pricing up given the jump in gasoline. It's the free rider in the group.

Probably the worst hit will be the already-crushed oil producers. The Permian producers will have nowhere to go short term in light of the refinery closures. So much of their capacity is exported, particularly refined product, which makes it even worse. These producers theoretically should be shorts, if they weren't already.

The pipeline companies will suffer some outages, but I predict they can come back on line so rapidly it shouldn't be an issue. That's because most of the pipe comes from the west, the Permian, to the Gulf, and that's going to be a function of people going to work, not destroyed infrastructure.

Which brings us to the insurers. The initial pattern for Katrina was instructive -- an immediate short-term hit as people figured, incorrectly, that the losses would hurt these companies badly. Yes, Travelers Cos. (TRV) , Allstate Corp. (ALL) , Hartford Financial Services Group Inc. (HIG) , Progressive Corp. (PGR) and Chubb Ltd. (CB) ended up rallying hard within three months, with the worst, Travelers, gaining only 5% and the best, Chubb, vaulting 27%. Chubb since has changed to include ACE, which acquired the company last year. Allstate rallied 10% in the next three months, Hartford put on a 17% gain and Progressive's stock jumped 20%.

It might not be apples to apples this time around, but it is safe to expect that insurers are able to raise rates after a storm of this capacity.

The reinsurers are a more complicated group. American International Group Inc. (AIG) back then, before the big reorganization from the Great Recession, rallied 10% as it was able to use the storm to raise rates. XL Group Ltd. (XL) fell from $70 to $60 but was back to $74 three months later as it, too, was able to raise rates. Berkshire Hathaway Inc. (BRK.B) , a gigantic reinsurer with many other lines of business, had a similar dip and then increased like the others. I like this choice given that Becky Quick from CNBC interviews Warren Buffett later this week and he no doubt will be extremely bullish about his company's prospects.

The two big insurance brokers, Aon plc (AON) and Marsh Marsh & McLennan Cos. (MMC) , saw their stocks jump 23% and 18% respectively, most likely as they were able to make more money in tandem with the insurers.

There were outliers to consider. CBRE Group Inc. (CBG) , the giant real estate broker, had a 35% gain, but that's a worst-case number as there was substantial relocation.

You would think that the big-box, do-it-yourself companies would cash in, but neither Lowe's Cos. (LOW) nor Home Depot Inc. (HD) showed substantial movement either way. They caught knee-jerk increases of a couple of percent, but gave that up quickly.

All in all, the best bets will be the refiners that have national capacity, which makes Valero the best play.

Reinsurers are second best. Then the insurers themselves.

The rest are just asterisks.

The best shorts? The stocks of the bedraggled oil companies, which will not be able to produce or export for an undetermined but potentially meaningful time. If oil and gas were to trade exclusively off this hurricane, all producers lose as the refiners win.

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