The U.S. stock market had a difficult third quarter because of worries of an economic slowdown in China and concerns about when the Federal Reserve will raise interest rates. As bad as things were on Wall Street, sustained low prices for crude oil made things even worse for Louisiana stocks.
The 24 stocks in The Advocate’s Pelican State Portfolio, which is made up of public companies based in Louisiana, were down 15.47 percent for the third quarter.
In contrast, the Dow Jones industrial average, an index of 30 top businesses, dropped by 8.3 percent during the three-month period ending Sept. 30. That was the worst performance for the Dow since the third quarter of 2011, when the index plunged by 12.1 percent.
The S&P 500, which tracks 500 large companies, was down 6.44 percent for the quarter, and the Russell 2000, which follows small-cap stocks that have an average market capitalization of $1.3 billion, was down 12.39 percent during the quarter.
Locally, “there were very few winners,” said Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South through the university’s Burkenroad Reports. “The real losers continue to be energy stocks. It’s been brutal. If oil prices stay at this level for a couple of years, there will be very few companies left standing.”
Oil prices rebounded slightly in the second quarter, as more drivers took to the road for summer vacations. But during the third quarter, crude oil prices went from $59.48 a barrel to below $40 a barrel for three days in late August, according to figures from the U.S. Energy Information Administration. The quarter ended with a barrel of oil costing just over $45 — less than half what it did last year.
“Everybody is looking for a bottom, and oil prices continue to fall in a big way,” Ricchiuti said. “And the fact that there’s not much in the way of mergers and acquisition makes it look even worse. That means that people in the industry think the turn to rising prices is somewhere pretty far off. You can buy these companies at great bargains, and people are not interested.”
The sustained low oil prices, which have been in effect since the third quarter of 2014, have taken their toll on the Pelican State Portfolio. For the 12-month period ending Sept. 30, the index has fallen by 14.4 percent. In contrast, the Russell 2000 was practically unchanged during the period, the S&P was down a modest 0.21 percent and the Dow dropped 4.45 percent.
The big losers during the quarter were oil and gas production firms. Shares of Stone Energy, of Lafayette, fell by more than 60 percent, and PetroQuest Energy was down by nearly 41 percent.
As dismal as those numbers are, Ricchiuti said the reality may be even worse.
“Energy companies are looking better than they really are,” he said. “Accounting firms are reassessing what the oil in the ground and all the equipment is really worth. The book value is higher than the share price because things have not been restated for how bad things really are.”
Oil service companies also were clobbered by the sustained low crude prices. Stock in Tidewater, the New Orleans-based company that provides service vessels to offshore rigs, was down more than 42 percent for the quarter. Petroleum Helicopters, the Lafayette firm that specializes in flying workers to offshore rigs, saw its stock price fall by just over 37 percent. Hornbeck Offshore, the Covington company that handles offshore transportation, fell by 34 percent.
“Oilfield services is actually the tougher of the two sides because they all service new wells, and there aren’t new wells,” Ricchiuti said. “You drive down U.S. Highway 90, and it looks like the world is starting to rip apart. It’s bleak looking.”
The lack of drilling activity has affected other Lafayette-based businesses because investors are concerned about how much exposure the companies have to the oil industry.
MidSouth Bancorp and IberiaBank, both of which are based out of Lafayette, saw stock prices drop by more than 14 percent during the quarter. “People are getting a little anxious about energy loans,” he said.
Ironically, it was another Lafayette-based company that was the big winner during the third quarter. The LHC Group, a home health agency, saw its stock price go up by just over 17 percent.
Ricchiuti said LHC has benefited from what is going on in the home health industry. There’s been speculation about mergers in the home health industry after Kindred Healthcare’s $1.8 billion purchase of Gentiva closed earlier this year. LHC, Baton Rouge-based Amedisys, Kindred and Almost Family are the only publicly traded home health firms left.
“There’s a lot of consolidation in that business,” he said.
Follow Timothy Boone on Twitter, @TCB_TheAdvocate.