When one recites the Beracha over spices, he should hold the spices in his right hand, just as when reciting a Beracha over food one should hold the food in his right hand. This is mentioned by the Ben Ish Hai (Rav Yosef Haim of Baghdad, 1833-1909), in Parashat Vaethanan (3).
The Keter Malchut records the custom to recite after smelling spices the four words, "Re’ah Niho’ah Isheh L’Hashem." (On Shabbat, one recites, "Shamor Ve’zachor Be’dibbur Ehad Ne’emru Re’ah Niho’ah…") These words contain allusions relevant to smelling spices, and thus it is proper to recite them anytime one smells spices. However, one must ensure not to recite these words until after smelling the spices, in order not to make a Hefsek (interruption) in between the Beracha and smelling.
The Magen Abraham (Rav Abraham Gombiner, Poland, 1637-1682) writes (297:1) that when one recites the Beracha over smelling herbs, such as during Habdala, he must hold the herbs upright. For example, if one is reciting the Beracha over a Hadas branch, he should ensure to hold the branch upright during the Beracha. This applies as well if one is reciting the Beracha over a fragrant flower. The flower should not be held horizontally, but rather in a vertical, upright position. As the Hida (Rav Haim Yosef David Azulai, 1724-1807) explains, it would be disrespectful to the Beracha to hold the plant sideways, or to allow it to droop down, while reciting the Beracha.
(Taken from Yalkut Yosef – Berachot, vol. 3, p. 331; listen to audio recording for precise citation)
Summary: When reciting the Beracha over spices, one should hold the spice in his right hand, and if it is a plant, he must ensure to hold it upright. After smelling the spices, it is proper to recite the words, "Re’ah Niho’ah Isheh L’Hashem."
