The shipping group is stratified into several groups based on the freight carried. It includes primarily drybulk shippers such as Dryships Inc. (DRYS) and Navios Maritime Holdings (NM) that transport bulk cargo items such as ore or food staples; oil tankers such as General Maritime Corp. (GMR) and Frontline Ltd (FRO) that transport crude oil, petroleum products, liquefied petroleum gas and chemicals; and containership such as Horizon Lines Inc. (HRZ) that carry their entire load in truck-size containers.
Overall, global shipping as represented by the Dow Jones Global Shipping Index ($DJGSH) is down 72% below the highs in summer of 2007 and 42% below the recent highs set near the beginning of the year. However, within categories, the drybulk shipping industry that has been challenged due to an over-supply of ships leading to a collapse in vessel rates is recovering, and the rates as represented by the Baltic Dry Index (BDI) are now up 100% above the lows set in February. However, they are still off by more than 80% below the highs set in 2008. Furthermore, most oil tanker companies are also off their highs, down between one-third and two-thirds off the highs set near the beginning of the year, and many containership shipping companies are off by one-third from their recent highs set near the beginning of the year.
In this article, we identify shipping companies that are being accumulated and those being distributed by legendary or guru fund managers such as Warren Buffet, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers. We then correlate that with the valuations of those companies, based on standard measures of valuation such as price-to-earnings (P/E), price-to-book (P/B) ratios and Enterprise Value to EBITDA (EV/ EBITDA). The EV/ EBITDA ratio is capital structure neutral, and is often used as an alternative and in addition to standard valuation measures such as P/E and P/B to compare across companies that have varying levels of debt leverage.
The hedge fund and mutual fund managers included in this select group include only high profile names who by virtue of their long-term market-beating returns have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie.
Overall, gurus are bullish on shipping stocks. During the June quarter, guru fund managers together added a net $87 million to their prior $583 million position in the group, selling $42 million and buying $129 million worth of stocks in the group. Furthermore, overall they are equal-weight in the group, and taken together, the 60+ guru funds have invested 0.15% of their assets in the group, at par with the 0.15% weighting of the group in the overall market.
The following are the shipping group companies that these guru fund managers are most bullish and bearish about (see Table):
Guru Funds Bullish on Value Buy Golar LNG Partners LP (GMLP): GMLP owns and operates floating storage and re-gasification units and LNG carriers under long-term charters. Guru funds are over-weight in GMLP as together they hold $32 million or 3.1% of the company, all added during the June quarter by Soros Fund Management LLC. GMLP trades at a forward 13 P/E, at a discount to the average 16 P/E for oil tankers; at a P/B ratio of 6.2, a premium to the 1.0 average for oil tankers; and at 5.1 EV/EBITDA, a discount to the 11 average for oil tankers.
Guru Funds Bullish on Value Buy Kirby Corp. (KEX): KEX is engaged in inland and offshore marine transportation, and the overhaul and repair of diesel engines and related parts. Guru funds are over-weight in KEX as together they hold $179 million or 6.4% of the company, including adding a net $21 million during the June quarter. Royce & Associates LLC ($150 million) is the only major holder. KEX trades at forward 15 P/E a slight discount to the average 16 P/E for oil tankers; at a P/B ratio of 2.5, a premium to the 1.0 average for oil tankers; and at 7.8 EV/EBITDA, a discount to the 11 average for oil tankers.
Guru Funds Bullish on Value Buy Navios Maritime Holdings (NM): NM provides international marine transportation services for dry-bulk cargo with a fleet of 57 vessels. Guru funds hold $7 million worth on NM stock, adding $1 million during the June quarter. Major holders included SAC Capital Advisors LP ($4 million) and Al Frank Asset Management ($2 million). NM trades at forward 5 P/E at a discount to the average 11 P/E for drybulk shippers; and at a P/B ratio of 0.4, also a discount to the 0.8 average for drybulk shippers.
Guru Funds Bullish on Golar LNG Ltd. (GLNG): GLNG provides international marine transportation services for liquefied natural gas (LNG) with a fleet of 12 vessels. Guru funds are over-weight in GLNG as together they hold $118 million or 5.6% of the company, including adding a net $49 million during the June quarter. Major buyers included Soros Fund Management LLC ($21 million), Driehaus Capital Management ($14 million) and SAC Capital Advisors LP ($12 million). GLNG trades at a forward 21 P/E, at the top of its historic P/E range and at a premium to the average 16 P/E for oil tankers; and at a P/B ratio of 3.2, a premium to the 1.0 average for oil tankers.
Gurus Bullish on Alexander & Baldwin (ALEX): ALEX provides containership freight services in Hawaii, Guam, China and U.S. Pacific coast ports with 17 vessels. Guru funds are over-weight in ALEX as together they hold $221 million or 13.2% of the company, including cutting a net $9 million during the June quarter. Major holders included Pershing Square Capital Management, LP ($142 million) and Third Avenue Management LLC ($45 million). ALEX trades at a forward 17 P/E, in the top half of its historic P/E range and at a premium to the average 8 P/E for containerships; and at a P/B ratio of 1.4, a premium to the 0.8 average for containerships.
Guru Funds Bullish on Overseas Shipbuilding Group (OSG): OSG is a provider of shipping transportation services for crude oil and petroleum bulk products with a fleet of 106 vessels. Guru funds are over-weight in OSG as together they hold $64 million or 13.2% of the company, including cutting a net $3 million during the June quarter. Major holders included Donald Smith & Co. ($53 million) and Royce & Associates LLC ($11 million). OSG is projected to generate losses at least until 2012; however, in terms of P/B, it trades at a discount 0.3 P/B compared to the 1.0 average for oil tankers.
Gurus Bearish on Dryships Inc. (DRYS): DRYS is a Greek provider of carrier transportation services with a fleet of 38 dry-bulk carriers and 12 tankers. Guru funds do not hold any positions in this company. DRYS trades at forward 4 P/E, at a discount to the average 11 P/E for drybulk shipping companies, and at 0.3 P/B that is also a discount to the 0.8 average for the drybulk shipping group.
Gurus Bearish on General Maritime Corp. (GMR): GMR provides international seaborne crude oil transportation services in the Atlantic basin with a fleet of 31 vessels. Guru funds do not hold any positions in this company. GMR is projected to generate losses at least until 2012; however, in terms of P/B, it trades at a discount 0.1 compared to the 1.0 average for oil tankers.
Gurus Bearish on Frontline Ltd (FRO): FRO provides tanker transportation services of oil and oil products through a fleet of 73 vessels. Only one guru fund, SAC Capital Advisors LP, has a position ($1 million) in this company. FRO is projected to generate losses at least until 2012; however, in terms of P/B, it trades at a discount 0.6 compared to the 1.0 average for oil tankers.
Gurus Bearish on Horizon Lines Inc. (HRZ): HRZ provides container shipping and integrated logistic services with a fleet of 20 vessels and 31,000 cargo containers. Guru funds do not hold any positions in this company. HRZ currently generates losses, and it trades at a premium 2 P/B compared to the 0.8 average for containerships.
General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in the above Table and in article.
These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.