This Little-Known Shipping Stock Could Double In 3 Months
Active trading is a never-ending educational process. No matter how long one has participated in the endeavor, there is always something new to learn. I have actively invested in the financial markets since 1990, and I am still constantly fascinated by new ideas and even sectors.
This is how the markets have captivated me for over two decades. They are never boring and are constantly offering up new ways to capture profits.
My stock screener recently alerted me to a low-priced stock that could easily double in the next 90 days. This company is part of an industry that I knew very little about, so I set out to learn all I could prior to investing. What I learned got me very excited about this company's potential.
If you have ever spent time on the beach, you may have noticed several large cargo ships traveling along the horizon. These ships transport products around the world from their country of manufacture.
Shipping rates are determined by supply and demand for ships. Obviously, the supply of ships in this business is fixed or inelastic, as economists would call it. However, demand is variable (elastic), leading to shipping rates increasing as demand for shipping increases.
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As shipping rates increase, it results in greater profits for shipping companies, which leads to higher stock prices for investors. Most interestingly, these rates are tracked by an index called the Baltic Dry Index (BDI).
The Baltic Dry Index has been trending higher due to an increase in Chinese economic activity and stocking of iron ore. This rate increase has lifted the share prices of shipping companies.
As the worldwide economic recovery continues, the BDI should continue to climb, which should power shipping stocks higher in the next 18 months or so. This is because new ships will be built to absorb the demand over time, and it takes several years to build a ship.
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My favorite stock to profit from this trend is FreeSeas (Nasdaq: FREE), an independent commercial shipping company based in Athens, Greece. The company currently owns seven ships with a total capacity of 197,200 deadweight tons.
To keep its fleet booked, FreeSeas uses spot and period-of-time charters and carrier pools. There are pluses and minuses for each of these methods, and FreeSeas is constantly evaluating the ideal way to deploy its shipping fleet. The small size of the company allows for this agility in the ever-changing market. This is one of the reasons I am bullish on FREE.
Shares soared over 300% in December, climbing from a low of $1 on Dec. 13 to over $3 at the end of the month. This sharp increase is what first alerted me to the company.
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FREE pierced the critical 200-day simple moving average on the upside before falling back over the past several trading days to the $2.25 range. A bullish candlestick pattern has formed, creating a strong buying opportunity.
Action to Take -->
-- Buy on a breakout above $2.50
-- Set stop-loss at $1.97
-- Set initial price target at $5 for a potential 100% gain in 90 days
This article originally appeared at ProfitableTrading.com:
This Low-Priced Shipper Can Easily Soar 100% in the Next 90 Days
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