The Pelican State Portfolio, a group of Louisiana stocks tracked by The Advocate, was outperformed by the stock market during 2014 because of the drastic drop in oil prices. The 24 stocks in the Pelican State Portfolio were up 5.7 percent for 2014. In contrast, the S&P 500, which tracks 500 large companies, was up nearly 13.7 percent for the year and the Dow Jones industrial average, an index of 30 top businesses, increased by 10.5 percent for the year. The portfolio beat the performance of the Russell 2000, which follows small cap stocks that have an average market capitalization of $1.3 billion; that index was up by 4.9 percent for the year.
The Louisiana index had been running ahead of the stock market during the first half of 2014. But it slipped in the second half of the year as the price of natural gas and oil dropped sharply.
The Pelican State Portfolio fell 2.27 percent in the fourth quarter. In contrast, the Dow Jones industrial average was up 6.7 percent in the quarter, the S&P 500 was up 6.3 percent and the Russell 2000 increased by nearly 11.4 percent.
“When the fourth quarter started, crude oil was trading at about $95 a barrel,” said Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South through the university’s Burkenroad Reports. “It’s now trading at below $50.”
The drop in prices, which has been caused by a global glut of oil, has had a ripple effect on Louisiana companies. Lafayette-based Stone Energy was the biggest loser in 2014. Its stock price fell by more than 51 percent to close 2014 at $16.88 a share.
But Ricchiuti said production companies such as Stone and PetroQuest Energy fared better than oil and gas service firms.
“The service companies got crucified,” he said. “It’s one thing to have the oil and gas in the ground and the value for it is less. But the people whose business operates on activity, it is really, really slowing down.”
Hornbeck Offshore of Covington, an offshore transportation company, saw the value of its stock drop by 49 percent during 2014 to end the year trading at just under $25 a share. Tidewater of New Orleans, which provides service vessels to offshore rigs, saw the value of its stock go down by 44 percent.
Ricchiuti said oil prices are expected to remain low through the second half of 2015.
“The thing I hear is that these prices will last a long time because OPEC is determined to crush the U.S. fracking industry,” he said. Because of the cost involved in fracturing rock in oil formations to release oil, crude prices have to be around $60 a barrel to reach a breakeven point.
Low oil prices could have a ripple effect on other businesses. Ricchiuti said he’s starting to hear concerns about how much of the loan portfolios of some south Louisiana banks are devoted to energy service companies. There could be some “real damage” to banks that are overexposed in loans.
“There’s so much of a need for capital in the oil and gas industry,” he said. “It’s always been an industry that has been very, very highly leveraged.”
While the drop in oil prices is expected to have huge negative effects on the state budget, it should benefit consumers who will be spending less on gasoline for their cars, trucks and SUVs. Ricchiuti said retailers reported phenomenal Christmas sales. “I heard someone on the radio say, ‘Less bank in the tank, more junk in the trunk.’ ”
While energy stocks did poorly, home health companies were two of the biggest winners in 2014.
Baton Rouge-based Amedisys saw its stock price double during the course of the year to close 2014 at $29.35 a share. Lafayette-based LHC Group was up by nearly 30 percent for the year, ending at $31.18 a share.
Ricchiuti serves on Amedisys’ board of directors, so he could not comment on the company’s stock performance. But he noted that the home health industry has been boosted by Kindred Healthcare’s $720 million purchase of Gentiva, which is set to close early this year.
“Kindred is a big, big health care firm, so people are starting to think about the advantages of having a platform of nurses and bringing them into homes,” he said. This has led health operators to “circle the wagons” of home health and hospice companies like Amedisys and LHC as potential takeover targets.
Lamar Advertising, of Baton Rouge, was another big winner, with the value of its stock rising by nearly 78 percent during the year to close 2014 at $53.64 a share.
Several factors played into Lamar’s performance. As the economy steadily improved in 2014, more businesses went back to buying space on Lamar’s billboards. Ricchiuti noted that during a down economy, often the first thing companies cut is advertising. When business bounces back, one of the first things companies start to spend money on is advertising, he said.
The other factor is the vote by Lamar shareholders in November to convert the company into a real estate investment trust.
“That changes everything,” Ricchiuti said. “You have to pay out 90 percent of your profits as dividends, so their yield is over 6 percent now. That brings in all kinds of investors.”
Follow Timothy Boone on Twitter, @TCB_TheAdvocate.