Feeling a little gloomy? Perhaps it is not because the workload tends to pick up in the fall or that you miss your kids laughing in and around the house. (Or do you?) Maybe the fact that September is the worst month of the year for stocks is getting you down? Or maybe you are looking ahead and thinking that the volatility of October is coming fast, and although that month has generally been positive, some of the worst crashes have occurred as the spooks of Halloween approach.
Quite simply, Benj rarely ever buys at this time of year. As many readers know, December is his month for chowing down on positions while tax selling is in full swing. That, as a general rule, knocks down the prices of the stocks that are in his swing zone, the beaten, unloved companies that have been losers. The pattern never really changes, which is comforting for him but might not mean enough activity for countless buyers. He is not looking for action, which, as a general rule, hinders results, but top-notch financial returns.
One stock that Benj bought in December, 2021, which has done reasonably well but has certainly not been a grand slam, is RPC Inc. RES–N, an oilfield services provider. Purchased at US$4.16 and currently trading around US$6.45, the initial sell target of US$21.24 is miles away. This company is a geographical heavyweight operating in the United States, Africa, Argentina, Canada, China, Latin America, Mexico, and the Middle East. Where is it not?
RES has numerous attributes that get The Contra Guys excited. A key one is that insiders own more than 60 per cent of the company. That is huge. While revenues click in at US$1.6-billion, the recent sales drop includes a 17-per-cent decrease in pressure pumping, the firm’s largest business. That was somewhat offset by an increase of 8 per cent in the rest of the revenues.
The company is debt-free. RPC has been profitable in eight of the past 10 years, with net income in the most recent quarter of US$32.4-million. It has more than US$260-million in cash, and the company is on the prowl for acquisitions. That can be either good or bad, of course, depending on the prey. However, given the excellent financial situation of the corporation, it would not surprise to see RPC as the quarry for an organization looking to expand. Naturally if it happens, that would be done at a premium.
One ingredient that could help push up the stock price is if the dividend is increased. It is currently at US$0.04 a quarter; in 2019, it was US$0.10, but management, which seems quite conservative, decided that a cut was prudent. This is a cyclical industry after all.
The executive of the firm is exceedingly stable. Chief executive officer Ben M. Palmer served as the chief financial officer from 1996 and became president and CEO in 2022. The previous CEO/president, Richard Hubbell, took on the position in 2003 and became executive chairman in 2022.
RPC operates in an exceptionally competitive field, and a highly-skilled management team is critical. This has aided RPC in introducing new products and services so that it remains a leading-edge, competitive outfit.
We never buy with a time frame in mind for when a stock will be sold. There are simply too many variables that can impact how long it takes a position to reach a target price, if ever. But as you have likely seen us write before, being paid a dividend to wait makes any holding period more worthwhile.
We are very wary that a major downturn might be lurking in the weeds waiting to leap out and plunder the stock market. From this angle, it seems overdue. That gives us pause to do any buying.
A few clues. First, economist Robert Shiller’s cyclically adjusted price-to-earnings (CAPE) ratio has only been higher twice in history and major stock market declines have followed. Second, the largest decline in U.S. M2 money supply since the depression has taken effect. Third, tack on to that the longest historical yield-curve inversion ever (Although parts of the yield curve have recently fallen out of inversion, there are others still showing the unnatural state of short-term bond yields coming in higher than long-term yields). These are huge warnings signalling that a substantial decline could be in the works, and it could be a good time to cash in some profits and even crystallize some losses. At the same time, it is quite possibly not an ideal moment to be dumping more money into the stock market.
For those investors considering buying RPC, it is worth noting that if markets get trounced, RPC will not be immune. Personally, if Benj was looking to buy more, he would wait until December to add to his stash.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter