The Pelican National portfolio outperformed the broader financial market in the second quarter of 2022, thanks to the performance of some local bank stocks, another bleak few months for Wall Street.
“Wherever you go, there’s nowhere to hide. … Large caps, small caps, different industries,” said Peter Ricchiuti, a professor of finance at Tulane University, who reports via the university’s Burkenroad Track stocks throughout the South.
The 20 publicly traded Louisiana businesses that make up the portfolio fell 9.8 percent from April to June of this year.
By contrast, the S&P 500, which tracks 500 large companies, fell 19.9% in the second quarter. The Russell 2000, which tracks small-cap stocks with an average market capitalization of $1.3 billion, fell 17.5% for the quarter. The Dow Jones Industrial Average, which is made up of 30 top companies, fell 11.4%.
Those numbers were just as bad for the 12-month period ended June 30. The Pelican Nation portfolio fell 11.4% over the period, while the Dow lost 10.8%, the S&P lost 11.9% and the Russell lost 26.1%.
Technology stocks and retailers were the biggest losers dragging the broader market.
Tesla shares fell nearly 38% in the second quarter. Amazon shares fell nearly 35%. Meta, the parent company of Facebook, fell more than 27%, while Alphabet, the umbrella company of Apple and Google, both fell 22%.
“It can be a good time to buy stocks when nobody wants to own them,” Ricchiuti said.
Baton Rouge-based Investar Holding, the parent company of Investar Bank, was the best performer of all locally listed companies in the second quarter. Shares rose 18.7% to close the quarter at $21.90. Hammond-based First Guarantee Bank and the parent company of Alexander Red River Bank also reported quarterly earnings.
Bank stocks have traditionally performed well when interest rates rise because of the growing gap between what institutions pay lenders and savers and what they can charge borrowers. But the yield curve has inverted, with short-term Treasuries yielding higher than long-term bonds. The idea is that banks use cheap short-term deposits to fund long-term loans, thereby boosting profits.
“It’s hard for banks to make money if things stay the same,” Ricchiuti said.
An inverted yield curve is also a warning sign of an impending recession. Hence, this leads investors to worry that banks have bad loans.
Fears of a recession dragged down other stocks. Shares of Lamar Advertising fell nearly 24.2% in the quarter. Advertising has traditionally been the first thing businesses cut back on in a bad economy.
“Lamar is a great company with a solid foundation,” he said.
Even stocks in recession-resistant sectors fell this quarter. Entergy fell nearly 2.7%. Lafayette home health agency LHC Group, which is being acquired by UnitedHealth Group, fell nearly 7.8%.
Amedisys was one of the biggest losers this quarter, with its shares down more than 36%. Shares of the Baton Rouge Home Health Agency have lost nearly two-thirds of their value since hitting a high of $293 in December 2020.
“There are a lot of recent issues with home health, such as nursing staff shortages and Medicare reimbursement rates,” Ricchiuti said. “But it’s an amazing business, and the demographics are in its favor.”
Despite the concerns, Ricchiuti said he did not see a severe recession. The price of natural gas, which has driven prices up, is steadily declining.
If the economy slows, it will be mild, he said.
“Businesses have been stashing away a lot of money to get through this,” he said. “If it gets worse, you’re likely to see a lot of mergers because companies have enough cash to do it and the company’s share price will fall.”