Energy stocks top 2nd quarter

The shares of 14 Oklahoma oil and natural gas companies recorded double-digit gains in the second quarter as rising commodity prices combined with a renewed corporate focus on reduced debt and lower costs.

Oklahoma City-based Chesapeake Energy Corp. led all Oklahoma stocks in the period with a gain of 74 percent, or $2.22, to $5.24 a share. Devon Energy Corp. was the state’s second-largest percentage and dollar gainer by adding $12.17, or 38 percent, to close the quarter at $43.96 a share.

Sonic Corp. rounded out the top three and posted the biggest state gain for a non-energy company by adding 36 percent, or $9.19, to close at $34.42.

“It seems like for all oil and gas companies, there was a lag between the recovery of oil prices and the recovery of the stock prices,” said Jake Dollarhide, president of Longbow Asset Management Co. in Tulsa.

“There’s no guarantee higher prices will last beyond the next quarter, but I think there’s a good chance it will. If that continues, it will not only allow them to improve significantly their balance sheets, it’s also going to help them improve profitability and possibly help stock prices go significantly higher in the second half of the year.”

The broader market has been less successful in the second quarter. The Dow Jones industrial average finished the period with three straight weekly declines, the first such stretch in more than two years.

But in Oklahoma, threequarters of the state’s publicly traded companies saw their stock prices grow in the second quarter. The biggest decliner was Tulsa-based Educational Development Corp, which dipped $6.40, or 25 percent, to $18.75.

Oklahoma City-based Blueknight Energy Partners gave back 85 cents, or 20 percent, to close at $3.40 a share, while LSB Industries slid 83 cents, or 14 percent, to $5.30.

Commodity prices boost energy stocks

Domestic benchmark West Texas Intermediate crude jumped 14 percent in the quarter, closing at $74.15 Friday. Natural gas prices gained 7 percent to $2.92 per 1,000 cubic feet.

“Wall Street is finally saying ‘let’s weigh energy,’” Dollarhide said. “They’ve been so afraid of energy and have been under-weighing energy. It’s amazing how long it took for Wall Street to warm back up to energy as an investment play.”

Chesapeake’s stock price jumped in early May, in the week leading up to the company’s annual meeting. Chesapeake directors met with shareholders, avoiding fights over a couple

of shareholder issues. Executives also restated their focus on repaying debt and continuing to strengthen the company’s balance sheet.

“That we’ve made foundational progress in transforming Chesapeake into a top-quartile E&P (exploration and production) company is evident in our systematic, sequential improvements in all aspects of our business,” CEO Doug Lawler said on May 2.

Across town, the stock price jump at Devon Energy in the second quarter added almost $6.3 billion to the company’s market capitalization. Devon executives in February announced plans to repay $1.5 billion in debt, buy back $1 billion in common stock and boost the company’s dividend. The stock buyback program was expanded to $4 billion in early June.

“All those actions

are very shareholderfriendly,” CEO Dave Hager said during the company’s annual meeting June 6. “We think that will be positive to the share price.”

Share buybacks also were a key reason for Sonic’s second-quarter success. Sonic Corp. saw nearly all of its second-quarter gains in the first week of June when the company announced a $500 million stock buyback plan.

“Sonic is a great story,” Dollarhide said. “As the unemployment rate continues to be in a free fall and as the U.S. economy continues to get better every day, more individuals and families have discretionary pocket change. They’re doing a lot of things with that money. They’re seeing movies, going shopping and eating a lot more meals outside the home. Sonic is a beneficiary of that.”

While most of the state’s stocks were up in the quarter,

not all industries and companies saw gains.

Tulsa bookseller Educational Development Corp. tumbled 25 percent despite earlier this month recording record sales of its line of children’s books and record earnings in the first quarter.

The company also recently restored its quarterly cash dividend payments.

The poor second quarter followed after Educational Development posted the state’s third best gain in the first quarter.

“One thing about trendy stocks is that when they go up, they often go down. Wall Street gets tired of the story,” Dollarhide said. “Their reports have been very good.”

Oklahoma City-based Blueknight Energy dipped 20 percent in the second quarter. Higher oil prices have discouraged companies from storing oil, a

trend that has hurt Blueknight and other storage firms.

Blueknight also may have been hurt by an April ruling by the Federal Energy Regulatory Commission that eliminates some of the tax benefits for master limited partnerships (MLPs).

“Most MLPs took it on the nose when that ruling came down,” Dollarhide said.

Oklahoma City-based chemicals company LSB Industries rounded out the state’s bottom three in the second quarter.

The company’s ammonia plants in Pryor and El Dorado, Arkansas, have struggled over the past few months with power failures and other setbacks.

“Chemicals stocks have been out of favor across the board on Wall Street, including larger players like Dow and DuPont,” Dollarhide said.

Continued volatility

Volatility has returned to Wall Street in 2018. The broader markets are nearly flat for the first half of the year despite posting two 1,000-point declines in one week in February. Some traders also are spooked by talks of tariffs and potential trade wars, Dollarhide said. Still, Dollarhide said he expects prices to hold relatively flat at least until November.

“There’s going to be some ups and downs, but I think we won’t make much progress between now and the midterm elections,” he said.

Unless something unlikely happens in the election, the markets likely will finish the year strong, Dollarhide said. “I think this could be a year where we see 75 percent to 85 percent of the total gain between Election Day and New Year’s Eve,” he said.