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In this special edition of the Marketplace Roundtable, Daniel Shvartsman interviews J Mintzmyer, Head of Research at Value Investor's Edge. J reviews the containership sector, the latest market conditions, and outlines the bullish thesis in the containership sector. The discussion reviews sector dynamics along with several top picks in the sector. The shipping sector is off to a very strong start in 2021, with YTD model portfolio returns of 136.6% (Speculative Plays) and 69.4% (Best Risk/Reward) on J's exclusive research platform: Value Investor's Edge.
This discussion is relevant for anyone with shipping investments or interest in the containerships sector. Specific firms reviewed include Atlas Corp. (ATCO), Danaos Corp. (DAC), Global Ship Lease (GSL), Navios Maritime Partners (NMM), and ZIM Integrated Shipping (ZIM).
ZIM was notably selected as a Seeking Alpha PRO "Top Idea" in early February, and the stock has returned over 225% in the four months since J Mintzmyer selected it as a top idea and published his research.
Related Reports
- Danaos Corp: Time to Load the Wagons with Containerships (Again)
- 2021 is the Year for Shipping: Q1-21 Update
- Previous Interview with J & Daniel (February 2021)
- ZIM Integrated: Post-IPO 'Top Idea' Report
Topics Covered
- 2:30 - Catching up on the containership market
- 5:30 - The myths around containerships
- 10:00 - The impact of the underlying ZIM stake on Danaos Corp
- 12:00 - Supply chain gives and takes for the containership sector
- 17:30 - Not anchoring on the price
- 19:00 - Why containership stocks don't directly follow rates
- 22:30 - Interest rate risk and inflation risk for containership lessors
- 26:30 - Valuing these companies given the cyclical nature of the business
- 32:00 - Favorite names for investors and traders
- 35:00 - Bear case scenarios for containerships
- 37:30 - Broad review of other shipping segments
Full Transcript
Daniel Shvartsman: Welcome to the Marketplace Roundtable. I'm Daniel Shvartsman of Shortman Studios. In this special edition, J Mintzmyer, author Value Investors Edge revisits the containership trade that we discussed on a podcast in February.
Spoiler alert, it's playing out very well, but J thinks the fundamentals continue to line up for longs here. Bouncing off a recent article J posted on Seeking Alpha, we discuss the trade, misconceptions around it, how to value these companies and what his favorite names are. It's a good conversation if you're looking for ideas, or just ways to think about a sector.
Before we begin, nothing on this podcast should be taken as investment advice of any sort. We disclose our positions at the end of this podcast. Pick up J's work on Seeking Alpha by searching for J Mintzmyer or Value Investors Edge. Subscribe to this podcast wherever you get podcasts.
Okay, here we go. Welcome to the Marketplace Roundtable special edition. Today I am speaking with J Mintzmyer, the author of Value Investors Edge, the well-known shipping expert on Seeking Alpha and he's been on the site for a decade now, I think. I'm Daniel Shvartsman. J, how are you doing today?
J Mintzmyer: Doing great, Daniel. Yeah, it actually will be 10 years that I've been on Seeking Alpha. I think my anniversary is late July of this year. So wow, I wasn't even thinking about it, but I'm glad you mentioned it, because it's been great ride.
DS: Yeah, I seem to -- I remember the early days a little bit more Best Buy, and Intel. But you've got the shipping focus now, as everybody knows. And we talked in February, we were talking about container ships. And at the time, it was one of those things where you're throwing out names like Danaos, and NMCI, which had 5x, 6x, huge numbers. And whenever you come into a run like that, it feels like we're at the end of the line. And there might be a little bit less to squeeze out. But it's got to be late.
And then as you were preparing for this, I noticed you just wrote up those names again. Most of them have more or less doubled in the last three or four months. So catch us up on what's going on? And we'll start with container ships, what's going on there? I mean seems like it's been quite a year, quite a nine months, whatever you want to put it, what are you seeing there?
JM: Yeah, certainly, Daniel. Yeah, it's been a while since we talked. If I recall correctly, it was early to mid-February. And you're totally right. We came into this thing and we were talking about five baggers and six baggers. And the two companies that you mentioned, were Danaos Corp, DAC, which I had a long position then. I also still have a long position now. And Navios Containers, NMCI, which ended up merging into Navios Partners, NMM, so a little bit of merger stuff there. But I'm still long that position.
And it's really interesting, because the stocks have appreciated at blistering paces. But the underlying valuations of the stocks have -- went up even faster. I don't think I've ever seen something like this personally, in my life at least or in my investment life, where the stock keeps going up. And I mean Danaos Corp is, as we're talking today, I should remind folks, it's the 14th of June. We're recording here in the morning. It's about now 11 o'clock in the morning. And Danaos Corp's like $74 a share. And that stock last fall was $5 or $6.
So public math, embarrassed myself here. But that's like a 14 bagger. And you look at that thing, and you're like my god, like I missed the train, I missed the boat. And I'm stuck over here and the rocket's almost to the moon, and I'm still on Earth.
But then you dig under it and you look at the valuations and you look at the price to NAV, you look at the price to future, like forward earnings. You look at the enterprise value to, the EV to EBITDA, you'd say wow, it's actually almost just as cheap, in some cases cheaper at $74 than it was at $10 last fall. And that's just bewildering. And it's hard to believe that.
So that's kind of where we're at, Daniel and the stocks. In terms of the market it has exceeded my wildest expectations. And I've been in shipping for about 10, almost 11 years now. And shipping is a volatile industry. It's higher risk on average, things are roller coaster at times. But it always surprises you. And it always seems to shock you.
But in the last decade, it has almost always seemed to surprise people in a negative way. It's always been worse than we thought it would be, or the downturn was longer than we thought it would be. And now it's the opposite. These rates are at all-time record highs. And not only are the rates themselves there, the durations of these rates are exceeding. I think last time we talked Daniel, I was saying you can get this for a year, or you can get two years. Daniel, now we're talking four to five years on these rates. It's just phenomenal.
DS: Which obviously means, we're going to get into questions, I guess about peaks cycle about cyclical valuations, all that sort of. I think that's what everybody looks at is the downside. But the article you just wrote, I thought was interesting. Because you did a nice job, I think you pounded the table again on the names you like, GSL, I think was the other one that you call that along with Danaos.
But you also tackled what you called five myths about this, as far as stocks falling, rates as far as this just being temporary and a few other ones. And I guess, you've been pitching, obviously -- you've been talking shipping for a long time, like you said. And there are times where you get excited about the industry. So you're out there telling people about it and journalists, like myself kind of look at shipping at best as a hard to understand what's inside the box, what's inside the container industry.
And I'm curious what you find? Like, as you hear misconceptions from other investors, like what's most frustrating to you right now, as you're sitting here, with that setup that you just mentioned? What are you sort of working through as far as how to explain to people what you see as a real opportunity here?
JM: Yeah, Daniel. I appreciate the kind words about the report. It's definitely a little lengthy so it took a few times to read through it, I wouldn't blame you. I like to keep my articles usually a little bit shorter. But this one -- there was just a lot to talk about. And it's been a long time since we updated. I encourage folks, if you haven't read it yet, head over to Seeking Alpha. You can search the DAC, Danaos Corp., and it'll bring up the article. It's not just about the Danaos Corp., it's about the entire container ship industry. But that's kind of the feature stock that I'm long in.
And then another one is Global Ship Lease, GSL. So I should mention again, folks, recording on the 14th of June. So like if you're listening to this recording at a later date, keep in mind I have options positions as well. So those can change those are just housekeeping and rolls from month to month, things like that. So just keep in mind, I have a long position on trading. I want that disclosure to be very clear for everybody on both the Danaos Corp., and Global Ship Lease.
All that said, take a look at the article and it'll make more sense to you. But there's five misconceptions that I bring up in this report. And the first one we kind of already touched on. It's that the stocks are more expensive now. And I walked through the math and I illustrate the enterprise value, I illustrate the NAV. And I show that if anything the stock is cheaper today, which is just like baffling. How the hell is a stock at $74 cheaper than a stock at $10? And I walked through it and I explain that.
Just a quick analogy to explain that, is think about owning a house. When you buy a house, you don't put -- let's say, it's a $500,000 or $600,000 house. Very few people put $500,000 or $600,000 down. They put $50,000 as a down payment or something. Or maybe it's 20%, maybe it's $100,000 down. And that $100,000 is your equity in the house, right, and the rest of the $400,000, $500,000 is debt. And so you don't say I spent $100,000 on a house, like nobody would say that. They would say I bought a $500,000 or $600,000 house.
Well, when it comes to stocks, people seem to kind of lose the tracking on that. And they only look at the stock price, which is the equity in the house. And they kind of forget that there's an entire enterprise, entire business they're buying. And so that's once you wrap your head around that analogy and the net debt and how that plays in, and the fact that Danaos Corp., is rapidly paying down debt and drowning in cash flow, it starts to make more sense. So that's the first one, Daniel.
I'll highlight the next board and then maybe we can move on. I said I don't want to be too long winded of an answer. But the second one is that rates are temporary. And they're only due to like some sort of temporary COVID disruption. It's way more complex than that. We're in the middle of a multiyear cyclical upturn that started in late-2019. It had already started, then COVID hit.
The third misconception and I think this is probably the one we can unpack the most in the follow up, is the shipping stocks always follow the rates. That's not really true. It's more of a recent phenomenon. And we'll keep talking about that more.
The fourth misconceptions that shareholder returns won't be strong. Not only is that not currently true, it's not historically true. Historically, these stocks have paid excellent dividends when times are good.
And the final misconception is that these owners are irresponsible, and they're just going to blow the cash on newbuilds, are all going to go bankrupt or something. That's not really what happened last time. There's misconceptions on that. And also, if we're paralleling this to 2007-2008, the stock valuations were completely different. And we can maybe unpack that a little bit more as well. So thanks for the question, Daniel. And I'm excited to talk about this because this is kind of -- this is probably the biggest report I've put out in, I would say probably a couple of years now.
DS: So yeah, let's unpack some of those. Before we get to the stocks falling rates. I first want to ask, could you spell out a little bit, I thought it was the -- what you did with Danaos and explaining -- I wasn't aware that they had a stake in another company and that's a nice hidden asset or other sort of story that kind of explains away some of what's going on there. Could you just touch on that quickly? Because I think that's an interesting angle there.
JM: Yeah, of course. It was a little bit over 10% stake, and now it's a little bit over 8%. They took a little bit off the table. They own 8% or so in ZIM Integrated Shipping (ZIM), stock symbol ZIM. I'm also long ZIM, I'm also pretty bullish about that company. But ZIM is a liner company. So that's the company that Danaos would rent their ships to. And there's about 10 major liner companies in the world and ZIM's one of the smaller ones. They got those shares way back when I think it was 2013 or 2014, as a result of a previous restructuring. After the global financial crisis, there was a huge downtrend. And some of the liners had to restructure.
And Danaos Corp., had charters out to ZIM. And Danaos Corp., said, hey, we're going to work with you, you're going to go through this restructuring. We'll cut the charters down a little bit for a few years. But in exchange, we want a bunch of debt. And we want 10% of your company.
And at the time, it was kind of a pioneering deal. It was kind of bold, if you will. And now we look at it six or seven years later and my goodness, what a brilliant, beautiful deal. Danaos gave up charters, in my opinion that were worth about $100 million. And they ended up with an equity stake in ZIM that is worth $400 million plus. So they had like quadruple their money on that restructuring deal.
And by the way, ZIM just repaid all the debt that they had given them as well. They repaid it two years early. They're still doing so good. They're making so much cash, that they just looked at the balance sheet and said, hey, we got this 2023 debt out there. Well, it's a little high cost, let's repay it.
DS: Yeah. That's a pretty big win for in that case, both companies, but for Danaos in general. So on the COVID issue then, you talked a lot about the setup here. And I think it's interesting not to push back, but to question about, we know, in the last three months, I mean, I think we talked about a month or two before the Suez Canal crisis, the liner getting stuck there. We talked before -- the real meme about transitory inflation and about supply shortages. I think semiconductors were already in shortage when we talked last. But there's still a feeling of -- we just had a once in a hopefully 100-year event that really disrupted how things work.
We're coming out of that, which is a once in a 100-year event. And so supply chains are still sort of adjusting, figuring it out sorting things left and right. And so it would seem like that would cause some degree of elevation, even if we're largely past the period of quarantine -- excessive quarantines and that sort of bottleneck. Your piece, I think talked a little bit more -- my sense was about the quarantining sort of COVID effect. What do you make about just that sort of -- from an economic standpoint, then the backlogs are a big problem for the global economy, which for now is a big plus for rates. Like what do you make about that element?
JM: Well, that's exactly right, Daniel. So I apologize if I didn't want to misspeak or anything like that. But yeah, what I was talking about when I'm saying it's not due to COVID, is it's not some sort of temporary phenomenon that's just due to quarantines or sick dock workers. There's this one news story that gets passed around and around and round. And it's kind of interesting, but it's about this fleet backup at LA and Long Beach. And how there's 30 container ships. And they're docked off there. And Oakland had, I think, 17 container ships or something.
So there's like the story that goes around and around and we've seen a lot of pushback and they're like, well, this is only due to those 30 vessels that are backed up outside Long Beach and totally temporary bottleneck. And it's going to be gone next month. And I even saw a guy on Twitter today again, June 14. And he's like, I'm going to short all these container ships, because these rates are known and this is temporary. And I did like a remind me in six months thing on the tweet. Like good luck to you. The market, there's buyers and sellers like nothing personal or nothing like, you can be long and short, there's nothing wrong with that.
But that's so big of a misconception of what's really going on here. So what is going on is two parts. The first part is that container ships are a cyclical industry multiyear upturn, multiyear downturn. We had a multiyear upturn from 2001, all the way through 2008, all the way through, like, even into like September-October. And that upturn was mostly due to China joining the WTO and U.S., China, Europe, Asia trade, both those trade routes exploding.
And what happened was we had the global financial crisis, right, everyone remembers that. And then we had this massive order book, and we're talking 60%-70% of the fleet was on order. I mean, that's enormous hard to even like fathom how big an order book that was. And that order book hit right after the GFC. And then you had almost a decade of downturn. Well, because the rates were so terrible, from about 2012 to 2018, the rates were terrible. Nobody was really ordering ships.
There was a little bit of fleet renewal in large vessels. But the order book was very small. In fact, it hit all-time record lows last year. Between 2016 and 2020, it was basically record lows on the order book. And so you had six to seven years of underinvestment in new container tonnage, while at the same time the global economy was kind of humming along. Well, you get to Q2, Q3 of 2019, and we finally turn the corner and we're on a major cyclical recovery.
At the end of 2019, Daniel, some of those eco-vessels, like I'm thinking like 9,000-10,000, TEU eco-ships, modern designs, they were in contract. Like in negotiations or rumor negotiations for four to five year deals at $40,000 to $50,000 a day, which is actually not that far below what they're signing on those ships on today. So these rates didn't just come out of nowhere. They were already starting to happen before COVID. So that's the first part.
The second part is COVID, yes, you had a huge supply disruption. And the disruption was for three or four months where tonnage dropped by 30% 40%. Now with the entire global supply chain, I'm talking ports, rail traffic, trucks, forklifts and stores, like every little chink and chain of the global supply chain is maximized right now. Everything is humming at full speed. And they still cannot keep up.
I mean, you're looking at these global inventory levels to sales. And they're well below the five-year average. In fact, they're basically five-year lows. And when you have those inventory levels at that pace, it means stores like Home Depot and Walmart and Amazon and Target need to restock their distribution centers, need to restock their stores. And so they're all placing orders.
And the global system simply cannot keep up. And it's not about LA and Long Beach. Like that's like one out of 55 things that's going on out there. So that's what I mean by that, Daniel. I know a long answer. But we -- it's two things. It's a cyclical upturn. And it's a global disruption. It's not some sort of like niche, one-off COVID thing.
DS: Yeah, no, totally. I mean I just -- I think that's people are going to -- as you mentioned, they're going to look at that, and they're going to try to -- I think we see a line, like a Danaos chart, and we try to explain it away, because it just doesn't -- even if Amazon is flat over the last nine or ten months. And so if you see a company like that, and then you see a container ship leaser that is straight up into the right. It's you want to like rationalize it in some way.
JM: It's crazy, isn't it? But even one thing I would encourage folks to do is pull up a chart of Danaos Corp, and hit the five-year button. And you'll see that over five years, it's up 50% to 60% in five years. That's not that remarkable rate. And then -- or hit like the max duration. And you can see that Danaos Corp.'s in public since 2006. You can see that, since basically 2009 or so the stock's basically flat since then.
So what you were looking at, last July, last August was extremely low valuations, extreme pessimism. The return is not so crazy when you would zoom out a little bit and look at the big picture chart.
DS: Right. Which is -- if you're going to base yourself on price, you can anchor yourself on any different range. In theory, it's more important to focus on fundamentals, I believe that in fact. But one fundamental that -- so you mentioned shipping stocks' falling rates, which kind of makes sense. The rates are sort of the fundamentals along with the supply of ships in the new order book. And you covered all those things in your article. Why was this the one that you want to come back to the idea that shipping stocks follow rates? Why does this bother you or not ring true?
JM: Yeah, well, there's a lot of truth. Whenever there's a misconception, there's almost always truth to it too. I mean, it's kind of like stereotypes. Like there's a little bit of truth there, but it just gets exaggerated, right? And it gets to the point where it gets exaggerated so much, it's offensive.
And misconceptions are kind of like stereotypes. And shipping stocks are that way, in a sense that drybulk and tankers, which are probably the most popular shipping segments, people think shipping, they think dry ships, where they think like frontline and tankers. And those stocks are very short term oriented, like 60 day voyages, 80 day voyages, two month. And there's not as much long-term business there.
So those stocks, those shipping stocks do follow rates, big time. I mean, we have long positions in drybulk. And we might circle back if we have time, I don't know if we will today. But in drybulk the stocks do follow the rates. And in fact, the future forward freight agreements were down a little bit this morning. The spot rates softened up month over month and the stocks are having a rough day this morning, because they do follow the rates.
Container ships are an industrial leasing business. Yes, there are assets that float. Yes, it ships. But this is long-term 3, 4, 5, 6 year charter cover. This is a lot more in common with something like AerCap, which is like an airplane leasing business, or United Rentals or even Caterpillar with miners, with -- Caterpillar leases their mining equipment. And it has much more in common with that kind of business.
So what really matters here is the long term charter book, the quality of your counterparties and basically your enterprise value to EBITDA. Those are the relevant metrics here. Your current spot rates for 60 or 90 days are kind of noise, are kind of like the fireworks you look at.
And the reason I bring this up, Daniel is because a big pushback I get from folks they pull up something like the HARPEX. And they say we've been at all-time record highs for three or four weeks. It cannot possibly go higher. Well, they've been saying it can't possibly go higher since February. Like it's tripled, but it cannot go higher. And they're like, the second those rates turned down, these stocks are going to crash. That's like what I hear.
And okay. I mean, fair enough point. I get you, like tankers, drybulk, sure. So what I do in this article is I say, well, let's look at the last two times that the rates came off. And so I pull up two different time periods, I pull up 2005 to 2007 and I pull up 2011 to 2014. And these time periods are interesting, because 2005 to 2007 the rates came off big time. But it was in the middle of what was undeniably a cyclical upturn. Like the rates were still very strong, but they just came off a little bit.
'11 to '14 is the opposite of that, where not only did the rates come down, but we were undeniably in a cyclical downturn. So you have kind of like -- it's worsening, but I like the big picture, to like it's worsening and the big picture also sucks. So like two different areas we can look at, and in both times, Daniel, the Atlas, which was Seaspan at the time, produced significantly strong positive returns over that time period. And Costamare (CMRE) which was not public the first time but was public the second time, produced significant positive returns, a 150% total return between 2011 and 2014.
Well, the rates are crashing, well, the cyclical tide is running out, the stock returns 150% in like a terrible environment. So it's just not true. That's not what history shows us. And that's not how this industry operates. The container ship industry, tankers, bulkers, yes. Look at the rates.
DS: You mentioned in there, AerCap, which is a stock, I actually own a position, and I'm long. And…
JM: That's awkward.
DS: I'm quite happy with the position, even if it's not quite the double every three months like Danaos. But the question is, interest rates, is that at all -- because cost of capital is sort of a big thing. And what was so impressive about the aircraft leasers was that they were still able to access cheap capital even during the obvious pandemic period that was harsh on their end markets.
I'm curious if the Fed -- as we record this again, on the 14th, the Fed is due to release their minutes in a couple days. There's some talk about maybe it's time to really think about this transitory inflation, et cetera. Like, is rates at all an issue for Danaos and these other companies? Or are they paying down debt and printing cash so fast that it doesn't really matter, because they have stronger balance sheets?
JM: That's a great question, Daniel. And yeah, for listeners, I actually didn't know Daniel was long AerCap. Quality firm, though. I've looked at it for many years. And Daniel, that's one stock I beat myself up on. I guess not -- I shouldn't do it too hard, because we did pretty good with shipping. But I should have also bought that one, excellent business model.
But anyways, to your question about interest rates and the impact. It depends on the company. There are seven or eight companies in the sector. So I don't want to paint with too broad of a brush. But specifically with Danaos Corp, the short answer is no, not at all. A little bit longer answer to that is that the Danaos Corp has a handful of lease terms that are at fixed rates. They have unsecured debt due 2028, so seven years from now, which is at fixed terms. And then they have a little bit of credit with the banks, which is at LIBOR plus like a margin. So that's floating. But that's a very small part of their capital structure. And they've been repaying that.
And also, I can't speak exactly to the latest hedge book because it always changes, right. But these companies usually hedge that debt. They do what's called a fixed to floating swaps, where they swap out that floating component and basically turn it into a multi-year fixed component. So yeah, there's very little risk in the short to medium term on rising interest rates, because first of all, mostly that's fixed. And then second of all, I think more importantly, is that the balance sheets are the best they've ever been.
We're talking debt to assets of 20% to 30%, on average, when historically they were 60% or 70% or 80% levered. So, that's not really a factor anymore. Now, one question I get a lot is, how does inflation play into this business? Now I'm not personally one to look back in a year and see how this plays out. But I'm not personally a big proponent of like hyperinflation, like I don't really buy that thesis necessarily.
But if you are a proponent of hyperinflation or just very large inflation, like, I don't know, 8% or 9%-10% for multi-year, that's going to help the shipping companies. Because all their assets have steel values, and they're basically commodities, and they're all going to rise up along with inflation, they might even outpace inflation, because there's like a commodity multiplier there.
And at the same time, their debt costs are all fixed. And so the real value of the debt goes down. So you have assets going up, you have debt going down, and your net asset value, the equity value kind of explodes. Because it's the difference between the two. So explodes upwards. So I don't really believe personally in hyperinflation. But if I did, I would be buying the hell out of shipping stocks, I'd be loading the wagons with the stuff if I was really into that. That's not why I'm buying it. I'm buying it for fundamental reasons for earnings and cash flows. But inflation is a tailwind, if anything.
If anything, Daniel that I don't want to look too much into negatives in a wrong way. But if anything, I would be more concerned if interest rates were zero to negative for another decade. I think that's a bigger risk to shipping than higher.
DS: Interesting. Okay. So I mentioned earlier, and it's come up in your talk too the sort of time horizon, the cycle here, the feeling of where a peak cycle, and how long this goes. You mentioned that they are locking in contracts for few years. I guess, how do you think about valuation here from the perspective of not to get too nerdy, but it seems like a terminal value would be harder to peg down for a company that's as cyclical as some of these companies are?
Are you just -- is it all how much money they can take out of the business and get back to shareholders? Or how do you think about the return? Or do you think that we're set up for a long period of success where it doesn't matter? How do you think -- how do you sort of get your head around that? Because that to me also seems like the lingering doubt that people would have looking at this is, again, sort of where we started. I've missed this move, and how can I really trust that old stick?
JM: I mean, that's kind of the million dollar question there, is how long will this bull cycle play out? And just to remind folks about the misconception with the rates, the HARPEX, the rates could pull back in a couple months. And that doesn't mean the bullish upturn, the cyclical upturn is done. That just means the rates are volatile.
And that's what happened if you go back again, and look at a chart from 2001 to 2008. You'll see lots of spikes and pull backs. But it was a seven year bullish cyclical upturn. So I don't know. I wouldn't go around saying it could be five or six or seven years. I don't think that's -- I don't think it's responsible to say that or to believe it. I mean I hope, they'd be nice to happen.
But I think realistically, 2022 is looking even stronger than this year, in terms of there's basically no new supply hitting the water. And global demand is expected to increase year-over-year, significantly, especially in like Q1-Q2. And so '22 looks even better than '21. '23 is where things start to get a little bit more balanced. And then 2024 is where I start to have some concern. First of all, it's really hard to forecast things two or three years in advance. I mean, hell, Daniel. I mean, in shipping, it's hard to forecast things two or three months in advance.
So I mean three years is a tall order. But I'm concerned, I would say about 2024. I think that's, -- I think that year is really on the balance. And it's really on the balance with the order book. You have to watch the ships these companies are ordering. And look I mentioned that during the 2006-2007, the order book was like 60% of the fleet. Right now is 17% -- or 17.5%. So we're nowhere near those levels. But I think 17% is pretty healthy to maximize what I'd like to see. I'd like to see like 5% Daniel, but the lower the better. But I think 17% is reasonable, it's healthy. But I think 2024 is kind of where I have concerns.
So to circle back to your initial question about how do I value and model these companies, look, I use multiple methods. But I think the most bearish method you could use would be a net present value of guaranteed cash flows. You just take every ship that's already fixed on charters, or is about to be fixed if it's coming up in two months, we can probably agree that those are going to be fixed.
So we look at all those ships that are fixed. And we plot out their guaranteed cash flows. And Danaos Corp just a couple weeks ago signed two vessels from April of 2022 through early 2026. So not only it is four year charters they don't even deliver to the customer until March or April of next year.
I mean, think about that. The Charter Liner -- the liner company is so desperate for tonnage, that they're willing to buy the ship eight months or nine months in advance for four years. Like, it's crazy. And with that vessel, Daniel, I can I can chart out the cash flow from 2022, from 2023, from 2025, all the way into like March or April of 2026. And I can do like a net present value. I can use a 10% discount value. I can use 15% discount value. And then I can say worst case, I mean, like utter cataclysm like total cyclical downturn, that vessel gets demolished in 2026 and heads to the scrapyard. That's like the worst case. It's like a liquidation model the business.
I can run that sort of model on Danaos Corp today. And it is basically mathematically impossible to come up with a valuation below 70s per share. In the most bearish model imaginable, which is just you finish the charters you already have. And then you demolish the fleet, and you liquidate the company. And it's like in the 70s. I mean, it's pretty incredible.
The risk reward on this thing is -- it doesn't mean it can't go down. Don't get me wrong. Like stocks can always go up, stocks always go down and price is just what buyers and sellers agree on. I mean, this thing could be down next month. I don't know that for sure. But I'm telling you fundamentally like how to value this company. The worst case valuation model is in the 70s.
DS: Yeah, that's the right way to think about things without x-raying your work -- to stress test the valuation as much as you can. And if it comes out that way, it's certainly eye catching.
Let's get a bottom line sort of on the container ships, I think, unless there's anything else you want to hit. And what do you like the most? I mean, you mentioned Danaos and GSL, is that -- should we just keep it simple? Are those the names that you're most excited to talk about or anything else stand out to you from the sector right now that you're really watching and eager about?
JM: Well, it's almost easier to disclose the names I don't have a position in because I'm bullish on so many of them. But I think it just depends on your viewpoint. Are you an individual investor that's looking for like the best risk reward? Are you an institutional investor? Are you an income investor that wants big dividends? I think if you like a bigger dividend yield, I think Global Ship Lease is probably the best one. I think they're the most likely to have large dividends and continued increases.
Danaos Corp., has a sizable dividend. But I think Global Ship Lease has a higher yield today. I'd have to look it up. But I think it's a couple percent higher. And I spoke with GSL management, they seem very attuned to raising that yield even higher. Let's talk real quick about GSL's dividend. So they had a dividend in the past, big dividend payer, but they were in a multi-year cyclical downturn. And in Q3 of 2015, I actually wrote a short report on Daniel back in 2015, I was like, this is an overpriced yield stock, it's garbage, get out. And they had to cut their dividend and the stock collapsed.
And they didn't pay a dividend for six years, because they couldn't the markets were bad. Well, they brought it back in early '21. They said we're going to do $0.12 a quarter. That was our first dividend. We're really proud of ourselves, patting ourselves on the back. We brought it back, folks. We fulfilled a promise. And two months later, they haven't even paid the $0.12 yeah, I mean, they just announced it. And they're like, I'm sorry, folks. The markets are so damn good. We're going to raise it to $0.25 a quarter before they even paid it, they doubled it. And that's how crazy things.
And I think they're going to keep doing that. I don't know if they're going to double it next time. But I think we'll probably see another raise. By the end of the year, I think they'll raise $0.25 even higher. I don't know to what, but I think there'll be another raise.
So long winded. But if you're income folks I think Global Ship Lease is the winner. If you're risk reward folks, I think Danaos Corp is the winner. And I think if you're institutional and you're listening on the phone today, and you manage a fund or something, I think Atlas Corp, I'm very long this company. ATCO, it's kind of the institutional play because it's 40% owned by Prem Watsa of Fairfax. And this company has solid 15 to 20 year industrial quality charters with the major liners. This is literally the AerCap (AER) of the seas, Daniel. You'll like that one.
DS: Okay. My ears perked up. I don't know if I'm institutional but my ears perked up.
JM: Well you like AerCap. So if you like AerCap, Atlas Corp, ATCO used to be called Seaspan for the original folks on here. That is basically the floating version of AerCap. It's an industrial leasing company. It's not even really shipping.
DS: Okay, got it -- so it's a very much -- I mean, it's a financial company is sort of the way to think about that. It's --
JM: Exactly, exactly. And that's most of the shipping companies on the container ship side are financial companies. They're not really -- I mean, yeah, they're shipping because they -- that's like saying AerCorp is like an airline, like it's not quite -- it's really a financial corporation.
DS: Right, right. Financial corporation with exposure to a given sector. I mean-
JM: Exactly, exactly. That's right.
DS: So what are you most concerned about at this point? You mentioned the 2024 order book. Like is there anything, when you look at this trade at this point that you're sweating over, or anything that you're most worried about?
JM: Well, I actually run a little hot. So I might be sweating here as we're talking. But no, I think my largest concerns, and there are very legitimate concerns. I think are on a global macro sort of sense. I look at this thing, and I'm a value investor by heart. You mentioned when I first started on Seeking Alpha, I was talking about Walmart and Microsoft and Intel and Best Buy, and I'm a value guy. And we've been in -- it's been a protracted one, it hasn't been like a huge boom. But we've been in what like 11-year 12-year like bull-run upturn kind of thing. And we've had ZIRP and NIRP, zero interest rates and negative interest rate policy for like five or six years.
And I'm concerned that if we have a major global recession, or something around the corner, in '22, or '23, I hope not. But if we do, these companies are going to fall. The stocks are going to crash. And Danaos Corp., probably be below my $70 case, if we have a global recession. But the entire global stock market is going to crash in that circumstance. So that's what keeps me awake at night, Daniel.
And so most of my hedges are market hedges. I have a couple companies, I'm shorting and then I have, like for example, I have SPY puts, SPY Index puts. I have things like that as hedges. That's what concerns me the most. So not so much shipping stuff, but more so global macro, a new version of COVID, or, U.S. China trade war or something like that is much more of a concern to me.
DS: Got it, okay. In theory value is having a moment. And you could argue that value in an economic downturn is a safer place to be. But obviously, it's not as simple as that. And most things will go down no matter what.
JM: So don't buy, again, not investment advice. I can't give you allocation advice, but never buy it. Don't buy these stocks on margin. Don't get overextended. I mean, I use options, sometimes to add a little leverage. But just be careful with that kind of stuff. Because your business can do really, really well. And your stock can still go down. So just be responsible out there. And I think that's the way to play it.
DS: Yeah, hopefully people have learned that even if the market continues to give us weird moves in weird stocks that are doing well. So before we wrap anything else, sort of on your plate at Value Investors Edge? Anything else that you guys are falling, or anything you're excited about? Or has it been I mean, given the setup, you sound pretty bold up on containerships so maybe it's not worth finding other baskets. But how are you -- what else are you guys looking at?
JM: Yeah, well, containerships is the fun one. Because we're riding the wave or we're on our surfboards, riding the wave of cash flows, and we're harvesting and we're enjoying the dividends. And that's a fun one to talk about. We're running low on time today. So I guess I just a quick shout out to the sectors. Drybulk, is -- I'm trading drybulk a lot. I am bullish on 2022. I think the order book is at all-time record lows. It's very interesting, very attractive. But mostly with the stocks. I'm long a handful I won't get into all those disclosures and all that but I'm long a handful of them.
And I think they're excellent trades. But I don't have the same risk reward viewpoints. Because if the rates go down, the stocks are going to go down and the rates go up the stocks go up. Like it's kind of a trade. Tankers are bottoming out big time. It's been a rough year. Some optimism for late '21. But really, I think it's more of a 2022 story. And then the gas markets long-term bullish on both LNG and LPG. But those right now -- I think you stick to quality companies. And you look for the good management teams and you're more selective in that way.
I think containerships stand out because of the risk reward nature of the business. That's what makes them so interesting to me. Because it's not just some sort of like quick trade, it's actually like a legitimate multi-year investment.
DS: Good review there of the sector. So J, any last thoughts on shipping in general on the market or any closing notes here?
JM: I'm not that much, Daniel. I really appreciate you having me on today. I think one little note that you mentioned is that value is indeed having its moment. And value has been down and beaten down compared to growth for most of the last 10 to 15 years. So value is yes, it has this moment, but it's only been a six month, eight month moment. So if there's any sort of long multi-year reversion, I think value investors like ourselves are going to be in for a hell of a ride. So, fingers crossed, that value reversion happens before any sort of like global macro problems. I guess that's kind of that'd be like the icing on the cake, if you will. But no, thanks again for having me on. And it's always good to chat with you.
DS: Yeah, we're attuned as value investors to assuming the worst, but maybe we'll allow ourselves some hope this time.
But yeah, J, it's been a pleasure. Congrats on how this is playing out for you. That's really -- it's nice to see the fundamentals and the analysis line up with what's happened in the markets.
So I think to wrap for disclosures is for people listening, I think I disclosed that AerCap position. I think you have ZIM, DAC, NMM, GSL and ATCO, is that right, anything?
JM: That's correct. Yeah, you hit all the stocks we're talking about. I also have some drybulk positions but since we didn't name tickers I won't get into that. Just keep in mind again folks 14 June 2021, so like I have June expiration options, I have July options, August options. So I do housekeeping and monthly rolls and stuff like that. So just keep in mind I have trades on these names. And if you listening to this recording in like a month or two just make sure you look at the latest and ask me if you're unsure, tweet at me or something. I'll share the latest disclosures. I just don't want you to think that it's in August or something and this recording is from June 14th.
DS: Positions can and will change for sure.
JM: Exactly, exactly.
DS: You can find J on Seeking Alpha. J Mintzmyer is the author name, Value Investors Edge is the marketplace service, also on Twitter, I think @mintzmyer. Is that right, J?
JM: That's correct. And we also launched a YouTube Channel a couple months ago, where I have some interviews and webinars. And we'll probably post this when this podcast comes out, we'll probably get that on our YouTube as well.
DS: Very cool. All right, J, thanks so much. Keep up the great work and best of luck to you as this wave keeps cresting.
JM: Excellent. Thanks again, Daniel.
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