Hedge Funds Are Buying These 3 Low P/E Greek Shipping Small Caps

Includes: CMRE, GASS, SB
by: Kapitall

Earlier this month, Fitch upgraded Greece's currency rating to B- and issued a stable outlook for the nation. While Greece continues to work on its economic recovery, shipping - one of the country's most significant industries - also hopes to escape its several-year slump. A May 9th Wall Street Journal article pointed towards a recent surge in orders as a possible indicator of a turnaround in the industry. With a recovery hopefully on the horizon, we wanted to identify potentially undervalued Greek shipping stocks that may be well positioned for growth.

We began with a universe of Greek shipping stocks and then narrowed that list down to stocks with forward and trailing P/E ratios of 15 or lower. Low P/Es are attractive because nobody wants to overpay for good growth - although this number may indicate there is little growth at all.

Next we screened the remaining stocks for those with bullish sentiment from institutional investors, indicated by significant net institutional purchases over the last quarter representing at least 5% of share float. This suggests that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research

Do you believe in these stocks' growth potential? Use this list as a starting point for your analysis.

1. StealthGas, Inc. (NASDAQ:GASS): Engages in the ownership of a fleet of liquefied petroleum gas (NYSE:LPG) carriers that provide international seaborne transportation services to LPG producers and users in Greece and internationally.

  • Market cap at $209.52M, most recent closing price at $9.93.
  • Trailing P/E is 7.19. Forward P/E is 6.35.
  • Net institutional purchases in the current quarter at 897.0K shares, which represents about 5.86% of the company's float of 15.31M shares. The 2 top holders of the stock are Royce & Associates, LLC and Zesiger Capital Group LLC.

StealthGas Inc. had $29.4 million in revenue, beating the $26.4 million analyst estimate and reflecting a 1% increase from $29.1 million the first quarter of 2013. While the company's first quarter earnings per share fell by 13.9% from $0.36 to $0.31, NBC News reports that it still beat the analyst estimate of $0.36.

Since April 29th, StealthGas has returned -2.17%. Competitors Tsakos Energy Navigation Ltd. (NYSE:TNP) and Golar LNG Ltd. (NASDAQ:GLNG) have delivered better returns of 32.79% and 7.43%, respectively, during the same period.

StealthGas stands to benefit from the U.S.'s record natural gas output. Bloomberg reports that large gas carrier rates increased by 28% to $70.50 a metric ton last week, thanks to increased U.S. LPG exports. Seeking Alpha contributor David Zanoni wrote about the company earlier this week, citing its undervaluation - it trades at 59% of its book value -and positive growth in the LPG sector as reasons to invest.

2. Safe Bulkers, Inc. (NYSE:SB): Provides marine drybulk transportation services worldwide.

  • Market cap at $409.42M, most recent closing price at $5.34.
  • Trailing P/E is 4.53. Forward P/E is 7.33.
  • Net institutional purchases in the current quarter at 2.0M shares, which represents about 6.62% of the company's float of 30.21M shares.The 2 top holders of the stock are Oceanic Investment Management LTD and Morgan Stanley.

Safe Bulkers' year-over-year revenue rose by 0.07% to $44.1 million in the first quarter of 2013 and surpassed the analyst estimate of $40.14 million. However, the company's adjusted earnings per share fell by 34.38% to $0.21, matching the analyst estimate.

Safe Bulkers returned 9.20% over the last month. For more context, fellow drybulk transportation companies Navios Maritime Holdings Inc's (NYSE:NM) and DryShips, Inc. (NASDAQ:DRYS) returned 25.56% and 4.86%, respectively.

This quarter, Safe Bulkers will receive $7.7 million from prepayments on charters. The company owns 26 vessels, and the average charter lasts 5.1 years. In the earnings call, President Loukas Bamparis stated that GDP growth in BRIC countries is expected to spur investment in dry bulk commodities. Last week, Bloomberg reported that Deutsche Bank also believes the dry-bulk shipping industry will pick up, though the bank attributes the rebound to growth in Asian exports and the U.S. economy. Bamparis also noted that record grain exports transported via Panamax vessels have helped support the vessel's charter rate.

3. Costamare Inc. (NYSE:CMRE): Owns and charters containerships to liner companies.

  • Market cap at $1.25B, most recent closing price at $16.77.
  • Trailing P/E is 14.72. Forward P/E is 8.69.
  • Net institutional purchases in the current quarter at 1.7M shares, which represents about 6.45% of the company's float of 26.35M shares. The 2 top holders of the stock are Morgan Stanley and
    York Capital Management Global Advisors, LLC.

During the first quarter of 2013, Costamare saw a year-over-year drop in revenue and adjusted earnings per share, but both surpassed analysts' estimates. The company's $94.8 million in revenue beat the estimate of $94.21 million and reflected a 5.23% decrease from the same period last year. While adjusted earnings per share fell by 29.27% to $0.29 from $0.41 in the first quarter of 2012, they were still higher than the $0.26 estimate.

Costamare returned 3.71% over the last month, while fellow large cap shipping company Seaspan Corp. (NYSE:SSW) returned 7.81%.

Costamare's two 9,000 TEU containership vessels recently began their 10-year charters with MSC. The company will deliver eight additional vessels within the next nine months and expects the vessels to generate over $1.3 billion of contracted revenues over the span of their charters. Additionally, Costamare extended an existing charter with MSC for two more years and chartered a 1,504 TEU containership to COSCO at a daily rate of $7,350 for one year.

*Institutional data sourced from Fidelity. Price/earnings data sourced from Yahoo! Finance. All other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.