- Shipping stocks struggled during most of 2020. The consensus was that global pandemic = bad for shipping.
- In reality, the majority of shipping companies themselves had a phenomenal year, with LPG, LNG, and containers soaring to multi-year highs.
- Even the beleaguered tankers generated about 2-3 years of cash flow in just 3 quarters during the temporary floating storage boom.
- As the market turns more optimistic on a post-COVID world, shipping is primed to benefit. I believe it is the best sector for a 'rotation' trade.
- Furthermore, if you are concerned about high inflation (or believe other investors will be), then shipping is the place to be!
2021 Turnaround for Shipping Stocks?
Shipping had an admittedly rough year in 2020, primarily due to broad market generalizations and misconceptions. With the exception of dry bulk (which had a rough 2020, but is now off to a roaring start in 2021), every single sector in commercial shipping had a strong year.
With rotation trades ongoing, I believe we've now passed the inflection point. Momentum is clearly pushing this sector, but valuations remains at marked lows. I ramped up my shipping long exposure in September and I topped up even more positions in late-December, along with the release of our top picks and model portfolios for 2021 on Value Investor's Edge.
January has already been tremendously profitable (our picks are up an average of 16% in just the past week), but I believe we're just getting started.
Inflation + Stimulus = BUY Shipping
As covered in the summary bullets, I believe now is the most attractive time since early-2019 to invest in the shipping sector. We have the dual tailwinds of likely stimulus (i.e. boosting the already gangbusters containership trade) and inflationary pressures (i.e. driving up asset values).
No sector benefits more from this combination than shipping! Furthermore, we are finally starting to see the end of the tunnel on COVID-19. It will be a tough next few months, but the exit is becoming more and more clear. This will serve to bring positive sentiment back to these stocks, an effect we've started to already witness since November.
2021 Looks Like 2019?
A couple weeks ago, I noted that 2021 looked a lot like 2019 in terms of the setup for shipping investments. As a reminder, during 2019, we returned 100.5% and 42.6% in our two model portfolios, beating the market by an average of 47%! This performance is shown below:
2020 was a challenging year, but we still outperformed out industry comps by around 30%. Thus far, 2021 is starting out as advertised. In just 7 trading days, our model portfolios have already returned 13.4% and 20.8%, outperforming the market by over 10%.
Free Market Webinar
I presented at the MoneyShow Accredited Investor Expo on 3 December, where I outlined the bullish case for the shipping markets. This full webinar is available below and all of the market data is still relevant. If you are interested in the shipping sector, please feel free to check it out.
I have published on Seeking Alpha for nearly 10-years now, but 90-95% of our work is exclusive at Value Investor's Edge. We have two week zero obligation free trials available for those who would like to learn more about the sector and review the rest of our top picks for 2021.
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