Tanker Stocks: Bargains Here?

Beam me up Scotti! Wouldn't it be nice to beam up a 100 million metric tons of coal, steel, wheat, copper or any other commodity from here to say China, or India, or Brazil? Well, technology is not there yet! The way this stuff is transported from producers to consumers overseas is mainly by huge ocean going vessels, marine tankers and they are busy these days carrying over huge amounts of every commodity to countries where demand is outstripping supply as every day goes by.

Only a decade ago Chinese were riding bicycles and wearing grey uniforms, happy to have a bowl of rice once a day. That time is gone forever! The communists have turned capitalists and they drive cars, build skyscrapers, eat better and want to enjoy every convenience that we have taken for granted for all of our lives. The same insatiable growth is propelling economies of Russia and its former satellites, as well as India, Brazil, Mexico and other.

They buy from us and other developed countries all the basic materials required to build a good life. Unfortunately the human kind did not yet developed a better way to deliver billions of tons of commodities across the oceans and tankers are the "only game in town"!

The tanker stocks that enjoyed a parabolic rise in 2006 and 2007 have sold off sharply with the rest of the market last November, but their profits are keep climbing higher and higher. Most of the stocks in that group are selling at single digit trailing and next year PE, while their "E" are growing at a double and triple digit rate. The Baltic Dry Bulk Index [BDI] that tracks daily charter rates for paid by commodities suppliers to ship their goods has climbed from the bottom reading of 5615 on January of this year to 8550 as of today indicating that daily charter rates are rising again fueled by strong demand.

Tankers stocks bounced up in the last couple of weeks from the bottom as well, but they are still cheap! ...and most of them pay very generous dividends, some yielding over 10%. The trend in shipping business will last as long as the BRIC countries will experience growth, which is for decades. This trend is there to stay and its irreversible! On the hand... there is no other hand, its supply and demand and demand is getting stronger!

For price appreciation consider the following stocks:

- TBS International LTD. (TBSI) $43.19 dividend yield 0%

- Aegean Marine Petroleum Network (ANW) $38.41 dividend yield 0.10%

- Dryships Inc. (DRYS) $84.54 dividend yield 0.95%

- Oveseas Shipholding Group (OSG) $75.36 dividend yield 1.66%

- Exel Maritime Carriers Ltd. (EXM) $43.85 dividend yield 1.83%

- Teekay Corp. (TK) $46.31 dividend yield 2.37%

- Navious Maritime Holdings Inc., (NM) $11.54 dividend yield 3.11%

For appreciation and high dividends consider the following stocks:

- Double Hull Tankers (DHT) $11.78 dividend yield 12.64%

- Arlington Tankers Ltd. (ATB) $22.90 dividend yield 10.13%

- Paragon Shipping Inc. (PRGM) $17.39 dividend yield 10.06%

- Knightsbridge Tankers (VLCCF) dividend yield 8.51%

- Navious Maritime Partners LP., (NMM) $16.72 dividend yield 8.44%

- Euroseas Ltd., (ESEA) $15.40 dividend yield 7.01%

There are multitude of stocks in the market that looks like a bargain, but some of them are. The real bargain is when a stock price is low relative to the future growth of the business. If business is fueled by irreversible global forces - that makes it a great investment! Buy tankers, I did!

Disclosure: Author is long stocks named in this article

Comments

[solar wind]

Just a note: tankers are oil, cargo is dry bulk, container is finished goods. Eagle also has a pretty good dividend, btw.

[Dectra]

Interesting article, with 2 points:

It's Navios not Navious

Where's the review of Frontline? (FRO), a tanker company I could argue is making a good bit of money these days, with an awesome yield of 14.90 percent?

[northquarter1]

What about FRO? Dividend return over 15%!

[Ivory Basement]

All tankers run on oil. Oil is more and more expensive and margins are falling on movements.
Also if you look at all the new build tankers coming on line in the near futures we may well end up with a glut of ships in 2-3 years.
None the less it's still a likely good medium term idea though.

[best.deception]

User 178946, understand that the cost of operating these vessels is anywhere from 5-9K a day, when they are making 60-120 (depending on the type of ship). Oil going up 20% may raise their costs by 15%, but that means they are getting only 90% GM vs a previous 90+%. Margins falling is a non issue.

[falcon56l]

has anyone looked at NAT?

[Cartledge]

I'm starting to get sick of these articles. People who aren't really posting any relevant information. I would equate this article to me posting the following about apple:

"So I went to the store last week and bought and iPod shuffle. It holds two gigs of music in get this, digital format! I played it while i went running yesterday. I thought, look at me, I'm cool. Turns out it's made by a company named Apple that trades under "AAPL". They've been making them for quite a while and increasing the ammount of them that they sell. A business fueled by irreversable cool forces - that makes a great investment. Buy AAPL - I did!"

[AJ30]

How do you rate DSX, I like their business model. Will the wave of new bottoms coming on line dull the rate structures in the near future?

[shhaz]

Been liking shipping stocks for a couple of years now. No surprise that this author/analyst likes them too.

[bds231]

Be careful here - many of the stocks mentioned are pure plays on oil/refined petrol products (as that's all they ship), rather than plays on broader commodities. They might also be ok to buy, but they're not dry bulk plays as advertised.

DHT - ships only crude oil
ATB - ships crude oil and refined petrol products
ANW - ships crude oil and refined petrol products
VLCCF - ships only crude oil
OSG - ships crude oil and refined petrol products
TK - ships crude oil and refined petrol products

(Data from finance.yahoo.com)

[bsharvy]

I wonder if you even have to worry about the price of oil for shipping companies that ship oil. Seems like that's a business where you could really pass along costs to the customer... the oil companies.

[Stock Sniper]

Paragon's symbol is incorrect in the article, it should be PRGN not PRGM.

[shhaz]

I like ONAV, ESEA, ATB and DHT

[bill stenner]

I am always amazed that someone has the smarts to consider an area off most peoples radars. Considering railways like CN have done spectacular and will continue to do so.. then Shipping is just another link. I dont think fuel prices over the long term will hurt them as that is just added into their costs. People dont have a choice.. do you want it shipped or not? Im still disappointed that that massive hippodrome never happened.. whatever happened to that neat idea for dirigible shipping. That just seemed brilliant..and no need for coastal drop offs. I smell conspiracy...

[InvestingPennies]

We retain a bullish outlook on EXM and recommended this stock on April 2, 2008. Since our recommendation, we have seen a 49.37% return. You can find our recommendation for Excel Maritime Carriers LTD here:

investingpennies.com/investment-notes-up...

[tjschoenlein]

Northquarter1.. you ask about FRO.. it's trading at its 52 week high with most of that gain coming in the last 45 days! For me, never buy any stock trading at its high or even close to it.. unless you have a monetary death wish.

Hey Cartledge.. lighten up.. the man is giving us food for thought. He likes the shippers and is suggusting that someone out there should take a look.. it works for me.
A Missouri boys view.

[Ivory Basement]

Unfortunately I work in oil industry trading. The price of oil IS a factor in ship movements and reduces shipping volumes. If your arb from one region to another is $2/bbl and shipping costs go up a $1/bbl (which we've seen) then your margin is reduced and the chances of you actually shipping something reduces because you're less likely to take on the inherent risks of moving cargoes long distances.
Not sure where some of the above numbers are coming from but the medium sized ships we move (37kt) ships we move brake even is around $20K a day. Cost of bunkers has risen faster than crude due to spec changes.

[NEH]

Thank you Cartledge!

[InvestorsLive.com]

EXM topped off, watching for consolidation

www.investorslive.com/blog/2008/04/recap... /

[cos1000]

I've got to tell you that finding good information on the variety of shipping models out their is tough to do, ie, oil shippers, vs dry bulk, vs containers. So as a new investor to this industry (NM), only a 1000 shares to learn my lesson, I appreciate any article that gets the conversation going.

Just listening here to the variety of knowledge and varied experiences is helpful, (although some may be bored). So Let the guy give his view and let me continue to listen to you guys/gals tear him up. It's all relative to wherever your at in the learning curve.

I'm more into "dry bulk" because you have to pay the shipping if you need the "goods", and less liability for on/off shore mishaps. DRYS, NM, DSX are of interest

[skrummydummy]

Man, dat EGLE shure had a nice run today!

[User 191265]

Has any one looked at U.S.S They have tankers, barges and tugs. I believe is a good mix. Right or wrong?

[GOLD]

All of the above companies are good but some are better yeilds with better future potential than others. Here is one that has been under the radar due to Q4 earnings illusions. Q4 earnings of TNK came out at $0.115 per share (however this was only for 13 days due to their IPO0. Their parent company is TK which is the largest spot market vessel management company in the world)

Here is where the money is read the data and you decide.

TNK presentation

Q1 EPS = $0.76
YRLY EPS = $3.04

The company just bought two new Suezmax tankers on credit and you can see that the profits will go up based upon this purchase and the currently highly spot rates. Download the guidance chart from TNK directly.

link to divided payout schedule (guidance chart) based upon spot rates
www.teekaytankers.com/index.aspx?page=ne...
download 48kb 3 page file and look at dividend spreadsheet.

Here is the data you need to do the calculations - this data was acquired from a professional source confirmed to be accurate with TNK.

04/04/08
VLCC $95,263
SUEZMAX $60,471
AfraMAX $41,447

I watch and record the weekly spot averages for all tanker types.
The above list is the Average tanker daily spot rate as of the end of Q1. Q2 is higher already.


Here is the latest average including every week from Jan 1 to today.
05/02/08
VLCC $96,718
SUEZMAN $72,152
AFRAMAX $46,545

For those of you too lazy to download this critical guidance here is the brief summary.

Current Q1 spot rates

20,000 = dividend $1.64
25,000 = dividend $1.99
30,000 = dividend $2.34
35,000 = dividend $2.69
40,000 = dividend $3.04 ***** here we are

Download the full chart to see how the two new suezmax tankers effect income (its dramatic).