Louisiana’s publicly traded stocks outperformed the broader market in 2018, thanks to strong performances in industries that are safe bets during uncertain economic times.
The stocks that make up the Pelican State Portfolio were down 5.5 percent for the year. In comparison, the Dow Jones industrial average, an index of 30 top businesses, dropped 5.6 percent during the year. The S&P 500, which tracks 500 large companies, was down by 6.6 percent for the year. The Russell 2000, which follows small-cap and mid-cap stocks that have an average market capitalization of $2.4 billion, was down by 12.2 percent.
“This was the worst stock market in a decade, we were almost in bear market territory,” said Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South through the university's Burkenroad Reports. A bear market is defined as when stock prices drop 20 percent from their recent high.
The big winners for 2018 were the state’s two home health companies: Amedisys, a Baton Rouge-based firm that ended the year trading 122 percent higher than it was at the end of 2017 and Lafayette-based LHC Group, which was up more than 53 percent.
Home health companies were a safe investment during 2018, a year that was marred by a trade war with China, rising interest rates, political battles and falling energy prices. Medicare reimbursement rates held steady, which is crucial because 90 percent of home health costs are paid by the program. And the aging baby boomer population means that the need for their services won’t drop off soon.
Another factor, Ricchiuti said, was CVS Health’s $69 billion purchase of Aetna, which closed in late November. By joining a pharmacy with an insurance company, the hope is to reduce medical costs. It also opens the door to potential large-scale mergers driven by deep-pocketed private equity firms that want to establish a continuum of care that links in home health.
Potential mergers of home health companies were always considered to be a possibility, but a major pharmacy chain coming in as a buyer really wasn’t considered, Ricchiuti said.
“Once CVS bought Aetna, we realized that we were not thinking large enough,” he said. “You’ve got giants joining forces that were only marginally related.”
Other big winners for the year were Covington-based Pool Corp., which was up by 17 percent, and Entergy, which saw its stock price go up by 15 percent. Ricchiuti said those were a good place for investors to hide because they’re involved in stable industries, especially in the case of a utility company like Entergy.
Finding a safe place was crucial during the brutal fourth quarter of 2018.
The 23 stocks in the portfolio were down 17.9 percent for the quarter. The broader indexes also performed poorly at the end of the year. The Dow was down by 12.3 percent, the S&P fell by 14.3 percent and the Russell was down by 20.6 percent.
Making matters worse during the quarter was the fact savvy investors sold off money-losing stocks at the end of the year for tax loss purposes. But that did shift around some investment, because shareholders have to wait 31 days before they buy back a stock they sold at a loss.
Offshore service companies, such as Lafayette-based Petroleum Helicopters and Hornbeck Offshore of Covington were big losers. Shares of PHI dropped by more than 80 percent during the quarter, ending the year trading at below $2 a share. Hornbeck fell by nearly 76 percent and was trading at below $1.50 a share by the end of the year.
“If you do offshore transportation, there’s nowhere to hide,” Ricchiuti said.
Crude oil prices dropped below $50 a barrel in late December, due to a slowdown in global demand and the Organization of Petroleum Exporting Countries not being willing to cut production.
The sustained drop in oil prices has made offshore drilling less appealing. “The oil company wants stuff that’s easier to get,” Ricchiuti said. In the past, oil companies had a mix of shale plays, which were easy and cheap to get but ran out quickly, along with deepwater finds, which last longer but require a large initial investment.
Bank stocks were also hard hit during the quarter, despite the fact that those stocks usually do well with rising interest rates. MidSouth Bank was off by 31 percent and shares of IberiaBank dropped by nearly 20 percent.
“It’s really hard to say, investors soured on the whole group,” Ricchiuti said. “That even includes the big money banks in New York.”
A combination of recession fears and concerns about loan quality in the face of falling oil prices may have especially hurt Louisiana banks, he said. “That’s a net negative,” Ricchiuti said.