Rollercoaster Markets: Another Containership Buying Opportunity
Global Shipping & Trade, Income Opportunities, Deep Value, short ideas
Seeking Alpha Analyst Since 2011
Mintzmyer founded Value Investor's Edge, a top-ranked deep value research service in May 2015, with the goal of establishing a top-tier community of deep value investors and activists. Value Investor's Edge subscribers leverage exclusive in-depth analytic reports and community investment experience to discover disconnects in global shipping and a variety of other beaten down sectors.
As part of directing Value Investor's Edge, Mintzmyer works with a team of five analysts and data technicians to deliver quality research and analytics to over 500 members. He has interviewed numerous management teams at public maritime firms, and has worked with a multitude of investors. Mintzmyer's exclusive analysis has received frequent 'Top Idea,' 'Must Read,' and 'Small Cap Insight' awards at Seeking Alpha and he is commonly cited in industry news such as TradeWinds and Splash 24/7.
Pursuing a Doctorate in Public Policy (Intl Relations) from Harvard University. M.A. in Public Policy, with focus on International Security & Economic Policy from the University of Maryland. Distinguished Graduate of the United States Air Force Academy with a B.S. in Economics. Extensive background in financial analysis, equity research, accounting, portfolio management, and customized asset allocation through nearly a decade of formalized education, personal studies, and practical experience. Avid reader of business/investments and biographies.
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Summary
- We've enjoyed strong gains in many of our shipping positions over the past 3 months.
- Volatility returned in late-January, but we used this as an opportunity to expand our containership investments.
- With rates setting new highs and 2-3 year charter durations now commonplace, risk is significantly reduced.
Note: This containership market note is an update of ongoing research coverage at Value Investor's Edge. We have active free trials for those who are interested in the latest shipping research. Click here for a free trial link.
Return to Volatile Shipping Markets
After a tumultuous market for much of 2020, we enjoyed significant gains across most of our shipping positions during Q4, with particularly exceptional returns from the containership sector. This momentum continued throughout the first two weeks of 2021 where the broad industry surged, and our Model Portfolios at Value Investor’s Edge outperformed the Russell 2000 by over 10% in just 11 days of trading (16%+ average returns for our holdings).
Although these steady gains were enjoyable, the shipping sector can be volatile. This volatility gives us an additional edge since we can trade between names and exploit disconnects via our superior analytics platform. During late-January, many of the shipping stocks dropped back. There was some notable fundamental weakness in some areas: we saw a peaking in seasonal LNG rates, a decline in LPG arbitrage spreads, and the inevitable seasonal drop in Capesize dry bulk spot rates. Naturally, most of the shipping stocks responded in kind. The broad market volatility simply added to the roller coaster effects.
This set us up for some very profitable re-entries in our favorite names as the containership 'baby' got thrown out with the bathwater of peers.
Containers have been remarkably strong the past few months and we are seeing multi-year charter extensions signed on a near daily basis. Broad rates posted yet another 13-year high in last Friday’s Harpex update (see 5y chart below):
Source: Harper Petersen, Harpex Index, 5-year Chart
Another Buying Opportunity in Containerships
Longer-term focused investors were able to take advantage of recent market volatility to acquiring shares in containership companies which briefly pulled back alongside their peers in more spot-focused sectors such as dry bulk and LNG shipping.
I personally took advantage of this selloff last week to increase our long exposure to Navios Containers (NMCI) and Partners (NMM) as well as with fresh long positions in MPC Containers (MPCC) and Danaos (DAC). I have also added a fresh position in Zim Integrated (ZIM) in the upper-$11s after their tepid IPO last week. Rates and company fundamentals are stronger than ever, and we are also seeing some remarkable duration.
This is NOT like tankers with 60-80 day voyages. We are seeing 1-2 year and even 3-year deals signs on a regular basis. Here are three recent examples, just from the past week:
- 1-year Panamax charter at $27,500/day along
- 2-year Panamax charter at $22,750/day by Costamare (CMRE)
- 3-year Post-Panamax charter at $29k/day by Navios Containers (NMCI)
Rates are now expected to last longer than most pundits and investors hoped in their most bullish scenarios. For instance, the 3-year charter listed above at $29k/day doesn’t even start until July! Liners are that confident in the long-term strength of this market that they are doing everything they can to lock down tonnage even as far as 4-5 months in advance!
I’m long pretty much everything I can find in the sector and I believe this is yet another opportunity for savvy investors to take advantage of an ill-focused market. We're in the midst of earnings season reviews at Value Investor's Edge and I invite folks to sample our premium research coverage.
Analyst's Disclosure: I am/we are long CMRE, DAC, NMCI, NMM, ZIM.
Nothing in this blog constitutes investment advice in any fashion.
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