The Pelican State Portfolio, a group of Louisiana stocks tracked by The Advocate, lagged behind the stock market during the third quarter, which was tough for energy companies and small cap stocks.
The 25 stocks in the Pelican State Portfolio fell 9.2 percent in the third quarter. In contrast, the Dow Jones industrial average, an index of 30 top businesses, was up nearly 1.3 percent in the quarter. The S&P 500, which tracks 500 large companies, was up 0.6 percent for the period ending Sept. 30. And the Russell 2000, which follows small cap stocks that have an average market capitalization of $1.3 billion, dropped by almost 8 percent.
“Generally, as far as Louisiana stocks go, energy and small caps took it on the chin,” said Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South through the university’s Burkenroad Reports. “Both groups had been outperforming the overall market for the past few years.”
Indeed, for the 12-month period ending Sept. 30, the Pelican State Index was up 17.9 percent, putting it ahead of the S&P, which was up nearly 16 percent, the Dow, which was up by almost 12 percent, and the Russell, up by 2.6 percent.
A couple of factors affected energy and small cap stocks during the quarter. First oil and natural gas prices have fallen, putting a chill on exploration activity, Ricchiuti said.
“Oil prices have dropped to 18-month lows,” he said. “North America now has abundant production and the Saudis seem not to be willing to cut production to keep the price of crude up.”
Natural gas prices are now about $4 per thousand cubic feet. Ricchiuti said this has halted exploration of new areas for natural gas, since prices have to be around $5.50 per thousand cubic feet to make it financially worthwhile.
“Drilling in once hot areas like the Haynesville Shale (in northwest Louisiana) has basically stopped,” he said.
“Many people believe that the current environment is ripe for consolidation,” Ricchiuti said.
Energy fabrication and service stocks were also hit by the drop in prices. Tidewater, the New Orleans-based company that provides service vessels to rigs, saw its share price drop by 36 percent, even though Ricchiuti notes the bulk of its fleet is in foreign waters, “which are thought to be more stable and less fickle than operations in domestic waters.”
“Many people have said that the stock market is an excellent leading economic indicator,” he said. “If this is true, investors are betting on tougher times in the energy patch.”
The other factor hurting Louisiana-based companies was the fear that low interest rates may be going away because of the gradually improving national economy.
“Small caps benefit disproportionately from low interest rates,” Ricchiuti said. “With the economy getting stronger, most are betting that the Federal Reserve is ending it’s period of free money.”
There were some winners in the quarter. Baton Rouge-based Amedisys saw its stock price rise by nearly 19 percent to close the quarter at $20.17 a share. The company got some good news at the start of the quarter when the U.S. Securities and Exchange Commission announced it had completed a four-year investigation of Amedisys’ Medicare billing procedures and would not recommend any penalties.
Ricchiuti serves on Amedisys’ board of directors, so he could not comment on the company’s stock performance. But he did note that other home health stocks did well in the third quarter, pointing to the 8 percent share gain that Lafayette-based LHC Group had.
Activity in the home health sector has been driven by the “fat bid” Kindred Healthcare made for Gentiva. “I think that has investors excited about home health care again,” he said. “They’re looking around to see what other companies will go.”
Another winner in the third quarter was Monroe-based CenturyLink. The telecommunications company saw its share price go up by 13.5 percent during the quarter. “That’s the sort of company that people go to when the market is pretty bouncy,” Ricchiuti said.
H&E Equipment, the Baton Rouge-based provider of heavy equipment, saw its stock go up by nearly 11 percent during the quarter. The company has seen revenue from its sales and rental business post double-digit increases this year because of improving trends in commercial construction, especially in the energy and chemical sectors along the Gulf Coast.
The increased sales at businesses like H&E shows the positive impact that low energy prices are having on the rest of the economy, Ricchiuti said.
“Retailers will benefit as customers spend less on energy and can spend this extra money in stores,” he said. “And cheap natural gas is the feedstock for the massive build-out of new chemical plants and industrial facilities along the Gulf Coast.”
Follow Timothy Boone on Twitter @TCB_TheAdvocate.