2020 Oklahoma Inc. shows how pandemic is picking winners and losers for investors
The latest Oklahoma Inc. rankings highlight the impact the COVID-19 pandemic has had on larger market trends.
For investors, returns seemed to be influenced as much as anything else by companies’ specific industries, rather than by individual management strategies.
Technology-based companies did better than manufacturers. Manufacturers, especially ones that make air handling systems, did better than financial firms.
Financial firms, while hurting, weren’t nearly as bad off as energy companies.
As for energy companies — particularly ones with earnings exposure to changing commodity prices for oil and natural gas — those were hammered hardest of all.
The 2020 edition of Oklahoma Inc. covers a period of time between July 1, 2019, and June 30. Only a handful of public companies headquartered in Oklahoma avoided taking a beating over that time.
Based on data provided by S&P Global Market Intelligence, the ratings ranked the state’s 28 public companies on their performances in three key areas.
The 2020 edition of Oklahoma Inc. shows that:
• Only four of the companies on this year’s list posted positive total returns on stock values and dividends.
• Only seven of the companies posted year-over-year gains in total revenues.
• Only five posted year-over-year improvements in earnings per share.
• Only two of the companies posted positive numbers in all three measurements.
2020 Oklahoma Inc.’s top performer was Oklahoma City-based Paycom, a provider of comprehensive, cloud-based human capital management software.
The company posted a total return of 36.6% and grew its earnings per share by nearly 13%. Its 2019 Oklahoma Inc. ranking was third.
AAON Inc., which designs, manufactures and sells semi-custom heating, ventilation and air conditioning equipment for commercial and residential use, improved to be this year’s second-best performer for investors, up six spots compared to 2019.
Educational Development Corp., BOK Financial and ONE Gas Inc., a natural gas distributor that operates as a regulated utility in Oklahoma, Texas and Kansas, rounded out the top five.
This year, Oklahoma Inc.’s 28 companies traded on major exchanges posted an average one year total return including stocks and dividends of -40.9%.
The average percentage of change in revenues year over year for the companies was -16.1%, with Paycom at the top of that measure with 21.4% and Mammoth Energy Services at the bottom with a -69.4%.
The average year-over-year percent change in earnings per share was -190.3%. Williams was best in that category, up 120%. The worst was SandRidge Energy, at -1,483.6%.
While 2020 Oklahoma Inc. companies fared worse than broader markets, even those experienced a down year.
Zac Reynolds, the chief investment officer at Full Sail Capital in Oklahoma City, said the Dow Jones industrial average's total return (price change plus dividends reinvested) fell about 3.4% between July 1, 2019, and June 30, while the return on Standard & Poor's 500 index only climbed about 4.6%.
The Russell 2000 Index, which tracks publicly traded stocks of smaller companies, fell about 8%.
“It has been a challenging period, there’s no doubt about that,” Reynolds said.
Ongoing market forces that were playing themselves out even before the coronavirus forced the economy into a ditch in late March already were causing investors to review their options.
Over time, investors have avoided parking their money in banks, despite safeguards against potential risks they provide.
“A bank account is paying you next to nothing, and while you can’t lose any money that way, you are still losing money to inflation, which we are seeing kind of ticking up a little bit.”
Reynolds said that concern is reinforced by current monetary policies being used as tools by the U.S. Federal Reserve Bank to encourage economic growth.
“People who lived through the 1980s, which had much higher inflation, know how damaging that can be to your wealth.”
As for bonds? Reynolds said the annual yield on a 10-year U.S. Treasury note was set at 0.74% in mid-October, guaranteeing investors at least a 7.4% return when it matures. But he said that’s still a return of less than 1% annually.
Real estate, he said, is a more attractive investment to those who have the cash. However, a return on that investment might not be realized for decades.
“And so really, a lot of people are getting pushed toward the stock market as the only place where you can earn a reasonable rate of return.”
Given the markets’ current valuations, though, Reynolds said most analysts expect average returns over the next decade to be about half what they’ve been between 2010 and now.
“Maybe we get 5% or 6% return on stocks, compared to the 10% and 11% we have seen the past decade,” Reynolds said.
Robert C. Dauffenbach, director of the Center for Economic and Management Research at the University of Oklahoma's Price College of Business, said Oklahoma’s slate of public companies is mostly behind the eight ball for investors, given that all but seven are energy related.
“This is the most hated sector on Wall Street, and when one looks at revenue changes for Oklahoma based firms, one can understand why,” he said. “For these 28 companies, total revenue fell from $70 billion to $56 billion.”
Dauffenbach observed that market capitalization shares on the S&P 500 also are revealing.
Currently, the S&P 500 lists 26 companies, about 5%, from the energy sector. While the makeup of energy companies within the index has stayed relatively constant, its share of its market capitalization has been falling over time and recently accelerating.
In the first 10 months of 2019, they represented 5.1% of the index’s market capitalization. For the first 10 months of 2020, it's fallen to 2%, he said.
“The lockdowns and general economic malaise associated with the advance of COVID-19 may be principally responsible, as have continuing gains in asset prices for just about anything technology related.”
Reynolds agreed with Dauffenbach’s observations.
But he added he can see the lineup of public Oklahoma companies changing over time as other companies elsewhere migrate to areas with lower taxes and lower costs of living.
“We are seeing companies and people move out of places like California to places like Texas, and I think Oklahoma will benefit from that, as well,” he said. “We could end up with a broader range of industries that could really benefit our economy, over time.
“Companies like Paycom are very meaningful employers and economic drivers in Oklahoma, and in Oklahoma City, in particular.”