Analysts Conflicted Over Outlook for Currently Bullish Shipping Stocks

Bloomberg published positive comments on Shipping Stocks Tuesday in a piece titled, Teekay, Tanker Stocks, Havens in Market's Decline, May Rally.

Dune Lawrence, who authored the story, interviewed bullish as well as bearish analysts to get the whole picture regarding what the market is thinking about shipping stocks. He highlights:

* The strong performance of shipping stocks relative to the Standard & Poor´s 500 Index in recent months.

* Their appealing PE Ratio at 8.2 times earnings over the last 12 months (compared with 13.4 when the Bloomberg Tanker Index peaked in November 2004 and compared to the PE of 17 for the S&P 500).

* Their high dividend yield at 6.3 percent (compared twith 3.5 percent for both electric utilities and telephone companies in the S&P 500).

* That members of the tanker index have announcedd $1.31 billion in buybacks in the past year, which amounts to about 11 percent of the gauge´s total market capitalization of $12 billion.

He also mentions that freight rates have increased in the last months and therefore earnings have held up better than analysts predicted earlier this year. First quarter profits at all six mebers of the tanker index exceeded analysts' estimates. Omar Nokta, an analyst at Dahlman Rose & Co. said in a statement:

If you buy now, you get this awesome run for the fourth quarter. Most of the Street hasn't changed their estimates yet, not even for the current environment.

Some analysts say the higher rates, and the rally won't last. They warn that the stocks' low valutaion reflect the risks of investing in an industry where rates and earnings fluctuate rapidly. Jonathan Chappell at JPMorgan, who attributed the June rate surge to short-term factors, including the use of some tankers as storage by Iran and Saudi Arabia, said:

Everything else, from inventories, to demand estimates, to numbers of ships that have been removed this year, points to a bearish market.

Shipping analysts at Jefferies & Co. predict that tanker demand wil increase 3.8 percent in 2006 through 2008, compared with fleet growth of 5.4 percent.

Shipping stocks' comparitive performance chart since 2004: