3 Shipping Stocks to Bet on Despite Industry Challenges
The Zacks Transportation - Shipping industry is suffering from headwinds like raging inflation, higher interest rates, high fuel price and supply-chain disruptions. Despite the challenges, we believe that stocks like International Seaways INSW, SFL Corporation SFL and Ardmore Shipping Corporation ASC should grace one’s portfolio, given the improvement in the demand scenario from the pandemic lows. Favorable tanker rates also support top-line growth.
About the Industry
The companies housed in the Zacks Transportation - Shipping industry, which is cyclical in nature, offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with energy and utility bigwigs. Most participants focus on the seaborne transportation of crude oil and other oil products, globally.
The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape due to the coronavirus impact implies that shippers are relying more on third-party logistics providers.
The well-being of the industry participants is directly proportional to the health of the economy. The resumption of economic activities after coming to a standstill during COVID-19 bodes well for the industry.
3 Key Investing Trends to Watch in the Transportation-Shipping Industry
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent shipping stocks. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply-chain troubles. The spike in fuel costs (oil price was up 6.7% in the October-December period) is also flaring up the operating expenses of the industry players.
Increased Tanker Rates: Tanker rates, which have been high so far this year, will likely remain steep, at least in the near term. The favorable tanker rates are likely to aid the top-line performances of stocks like Scorpio Tankers and Teekay Tankers.
Economic Uncertainties: The hotter-than-expected inflation data, with the consumer price index (CPI) rising more than anticipated in January, has highlighted the fact that we are far from being out of the woods and that inflation remains a formidable foe. CPI was up 0.5% in the first month of the year, following a 0.1% rise in December and compared to expectations of a 0.4% rise. Risks associated with an economic slowdown, geopolitical tensions and supply-chain woes dampen the prospects of stocks belonging to this industrial cohort. Sluggishness-induced weakness in Asia and service challenges in Europe are contracting shipping volumes. This does not bode well for the industry participants.
Zacks Industry Rank Indicates Murky Prospects
The Zacks Transportation - Shipping industry is a 33-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #196, which places it in the bottom 22% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Before we present a few shipping stocks that you may want to invest in, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Outperforms S&P 500 and Sector
The Zacks Transportation - Shipping industry has outperformed the Zacks S&P 500 composite and the broader Transportation Sector over the past year.
The industry has gained 5.2% over this period against the S&P 500’s depreciation of 10.5% and the broader sector’s decline of 11.1%.
One-Year Price Performance
The Valuation Picture
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 3.71X compared with the S&P 500’s 11.72X. It is also below the sector’s trailing-12-month EV/EBITDA of 10.78X.
Over the past five years, the industry has traded as high as 15.25X, as low as 3.19X and at the median of 6.87X.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
3 Transportation -Shipping Stocks Worth Adding to Your Portfolio
All three stocks mentioned below carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
International Seaways is a tanker company. INSW provides energy transportation services for crude oil and petroleum products. International Seaways owns and operates a fleet, including ULCCs, VLCCs and MR tankers among others. INSW is being well-served by the increase in tanker rates.
INSW’s shares have soared 154.5% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 10.9% north.
Price and Consensus : INSW
SFL owns and operates vessels and offshore-related assets primarily in Bermuda, Cyprus, Malta, Liberia, Norway, the United Kingdom and the Marshall Islands. Efforts to reward its shareholders through dividends bode well.
SFL’s shares have gained 5.5% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 3.3% north.
Price and Consensus : SFL
Ardmore Shipping is being well-served by the bullishness surrounding the tanker market as both crude and product tanker rates are currently at healthy levels. The resumption of economic activities and an uptick in world trade has boosted ASC’s top-line performance.
The optimism surrounding the stock can be gauged from the fact that ASC shares have surged 324% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 25.9% north.
Price and Consensus: ASC
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International Seaways Inc. (INSW) : Free Stock Analysis Report
SFL Corporation Ltd. (SFL) : Free Stock Analysis Report
Ardmore Shipping Corporation (ASC) : Free Stock Analysis Report
