The stock market was downright nasty during the last few months of 2018. Major indexes got clobbered, along with several outperforming businesses. But sometimes the market's loss can be investors' gain, and there are signs that January is shaping up to be a great month to scoop up some bargains, or at least put some beaten-down tickers on your radar.
Apache Corporation (APA 0.79%), Kinder Morgan (KMI -1.21%), and Southwest Airlines (LUV -1.27%) are three stocks that seem to have been unjustly punished by the market in 2018. Here's where they stand in the new year and what to watch for this month to see if they might be worth buying.
Shares of oil drillers took a nosedive in the last quarter of 2018, as oil prices toppled from their relative highs to close out the year down about 25%. Brent crude, the key international benchmark, was hovering just above $50 per barrel, while major U.S. benchmark WTI crude had slipped to just above $45 per barrel. At those prices, many drillers will barely be able to turn a profit, and some may even lose money.
Still, driller Apache Corporation's slide of 37.8% for the year -- one of the worst stock performances in the oil patch -- seems like overkill, particularly when you factor in that it fell in 2017 as well. In fact, since Jan. 1, 2017, the stock has lost more than 50% of its value. Shares are now trading at 15-year lows, which means the company's dividend yield is at a near-record high of 3.2%.
And yet, Apache has been posting solid earnings, and is making progress with its promising Alpine High oil play in the Permian Basin. It's managed to sell underperforming Canadian assets and generally looks like a stronger company than it was two years ago. And with oil prices starting to creep upwards again, shares of this beaten-down driller may have a lot of upside. That makes Apache a company to watch this month.
Coming to fruition
I love it when a plan comes together -- and natural gas pipeline operator Kinder Morgan seems to be executing well on its plans. But investors will want to watch the company's fourth-quarter earnings report, which lands on Jan. 16.
Kinder Morgan upped its quarterly dividend by 60% in 2018 from $0.12 per share to $0.20 per share. This was after slashing it by 75% in 2016 as part of an effort to shore up its balance sheet. The company has announced that it plans to further increase the payout by 25% this year and by another 25% in 2020. This month, we'll see if the company is going to be able to put its money where its mouth is.
Considering how rosy management's 2019 outlook was just a month ago, it would be surprising indeed if things were suddenly rocky for Kinder Morgan. On Dec. 3, CEO Steve Kean confidently predicted a 10% year-over-year increase in distributable cash flow (DCF), which would allow the company to fully fund its dividend and most of its discretionary spending with internally generated cash flow, keeping its debt manageable.
In spite of all this good news, Kinder Morgan's stock dropped 14.9% in 2018. That makes it a shareholder-friendly investment at a very attractive price.
Check out the latest Kinder Morgan earnings call transcript.
Ready for liftoff
Southwest Airlines had a rocky start to 2018, beginning with its March announcement that its revenue per available seat mile (RASM) -- a popular metric when evaluating airlines' efficiency -- was expected to be flat year over year, as opposed to the modest increases some of its peers were anticipating. Then, in Q2, operating margins fell. The company also wasn't able to start its much-anticipated Hawaiian flights during the year.
But the airline actually posted a decent Q3, with RASM up 1.2%. It also made some changes that should continue to pay off in 2019, both operationally -- like boosting fees on some routes for its popular Early Bird early check-in service -- and financially -- like reducing its share count by 4.8%.
What was bad for Apache in Q4, though, may be good for Southwest: cheaper oil prices. CEO Gary Kelly was already predicting a better 2019 for the company, despite higher jet fuel prices, so investors should keep an eye on how the fourth quarter shapes up when it reports Q4 2018 earnings on Jan. 24. Better-than-expected results could indicate that Southwest is poised for a stellar year.
Check out the latest Southwest Airlines earnings call transcript.
What the new year holds
Just because these three stocks look poised to have good years doesn't mean that unexpected situations won't crop up and derail those expectations. In particular, if oil prices rise sharply, that could help Apache but hurt Southwest. And even though Kinder Morgan is primarily a natural gas pipeline operator, it's in the energy sector and has a small oil recovery business that could also make it susceptible to swings in oil prices.
But January should provide some critical clues as to how the rest of the year may shape up for these companies. Wise investors ought to keep these stocks on their radars this month.