In calamity there is opportunity, someone once said, and Kestrel Investment Management Corp. is looking to exploit the catastrophes of hurricanes Katrina and Rita in its small-cap and midcap value equity portfolio strategy.
"As contrarian investors, we look for overreaction to temporary disruptions," David J. Steirman, president of the San Mateo, Calif., firm, said in a letter to clients. "While Katrina and Rita showed our nation's vulnerabilities, the reaction to these disasters by the American people demonstrated a resiliency that typically creates major investment opportunities when things look bleakest."
Kestrel will be "establishing new positions in companies which are perceived as being near-term losers from higher energy prices," his letter said.
In an interview, Abbott J. Keller, chief investment officer, said Kestrel is looking at companies in the airline and paper industries, both energy-intensive users. "I can't name any companies because we are still building our positions," he added.
In terms of the existing stocks in Kestrel's portfolio, Mr. Steirman wrote in the letter, "Whether the problem is high casualty losses at insurer Direct General (Corp.), storm-related restaurant closures at Applebee's (International Inc.), or higher natural gas costs at cement producer Texas Industries (Inc.), two years from now these (hurricane) difficulties will likely be forgotten."