Thanks to bank stocks, Pelican State Portfolio outperforms broader markets

Thanks to the performance of a few local bank stocks, the Pelican State Portfolio outperformed the broader financial markets in the second quarter of 2022, in what was another dismal few months on Wall Street.

“It didn’t matter where you went, there was nowhere to hide. … Large-cap stocks, small-cap stocks, different industries,” said Peter Ricchiuti, a finance professor at Tulane University who tracks regional stocks across the South through the university’s Burkenroad Reports. 

The 20 Louisiana-based publicly traded businesses that make up the portfolio were down 9.8% from April through June of the year.

In comparison, the S&P 500, which tracks 500 large companies, was down 19.9% for the second quarter. The Russell 2000, which follows small-cap stocks with an average market capitalization of $1.3 billion, was down 17.5% for the quarter. The Dow Jones Industrial Average, an index of 30 top businesses, was down 11.4%.

The numbers were similarly bad for the 12-month period ending June 30. The Pelican State Portfolio was down 11.4% during that time, while the Dow fell 10.8%, the S&P dropped 11.9% and the Russell plunged 26.1%.

Tech stocks and retailers were the big losers that pulled down the broader markets. 

Tesla shares fell by nearly 38% during the second quarter. Amazon shares were down by almost 35%. Facebook parent Meta was down by more than 27%, while Apple and Alphabet, the umbrella company of Google, both dropped by 22%.

“When nobody wants to own stocks, it’s probably a good time to buy them,” Ricchiuti said.

Baton Rouge-based Investar Holding, the parent company of Investar Bank, had the best performance of any locally publicly traded company during the second quarter. Shares were up 18.7%, to close the quarter at $21.90. The parent companies of Hammond-based First Guaranty Bank and Red River Bank of Alexandria also posted quarterly gains.

Bank stocks traditionally do well when interest rates are rising because the gap between what institutions pay to lenders and depositors and what they can charge to borrowers gets wider. But the yield curve has inverted, with short-term Treasury bonds having higher yields than long-term bonds. The idea is banks use cheap short-term deposits to fund long-term loans, which boosts profits.

“If things are dead flat, it’s hard for banks to make any money,” Ricchiuti said.

An inverted yield curve is also a warning sign of an impending recession. So this is causing investors to worry about banks having bad loans.

Fears of a recession dragged down other stocks. Shares of Lamar Advertising fell by almost 24.2% during the quarter. Advertising is traditionally one of the first things businesses cut back on during lean economic times.

“Lamar is a great company with great fundamentals,” he said.

Even stocks in recession-proof industries fell during the quarter. Entergy was down nearly 2.7%. The Lafayette home health agency LHC Group, which is in the process of being acquired by UnitedHealth Group, fell nearly 7.8%.

Amedisys was one of the biggest losers in the quarter, with its share price falling by more than 36%. The Baton Rouge home health agency has seen its stock price fall by nearly two-thirds since hitting a high of $293 in December 2020.

“There are a lot of near-term problems in home health, like nursing shortages and Medicare reimbursement rates,” Ricchiuti said. “But it’s a terrific business and demographics are in its favor.”

Despite the fears, Ricchiuti said he doesn’t see a deep, deep recession in the cards. Gas prices, which have driven much of the increase in prices, are steadily coming down.

If there is an economic slowdown, he said, it will be a mild one.

“Businesses have stashed away a lot of money to ride things out,” he said. “If things get a lot worse, you may see a lot of mergers, because businesses have got the cash to do it and the stock price of companies are down.”