3 Shipping Stocks to Bet on From a Promising Industry
The Zacks Transportation - Shipping industry is suffering from headwinds like inflationary pressures, resultant high interest rates, increased fuel price and supply-chain disruptions. Despite the headwinds, positives like the re-opening of the Chinese economy and improvement in the demand scenario of goods and commodities from pandemic lows bode well for this key industry.
The prevalent scenario makes stocks like Kirby Corporation KEX, Teekay Tankers TNK and Ardmore Shipping Corporation ASC attractive investment options.
Industry Overview
The companies belonging to the Zacks Transportation - Shipping industry, which is cyclical, 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.
4 Key Investing Trends to Watch in the Transportation-Shipping Industry
Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply-chain woes, high fuel expenses and labor troubles. Below-par freight rates are also hurting the industry’s prospects.
Economic Uncertainty Remains: Though easing inflation has brought some relief to U.S. stock markets, the fact remains that we are far from being out of the woods. Though the Fed did not hike interest rates in September, Fed Chair Jerome Powell said that the fight against inflation is far from over and that at least another quarter percentage interest rate hike is required in the current year. Sluggish economic growth and inflationary woes are likely to hurt consumer spending for the remainder of 2023.
Reopening of the Chinese Economy: With the reopening of the Chinese economy, the entire shipping industry heaved a sigh of relief. In fact, ocean shipping is hugely dependent on China. This is because China is not only a key manufacturing hub but also sees significant high demand for goods and services, courtesy of the country’s large population. With the shipping industry responsible for transporting the bulk of the goods involved in global trade, the improvement in travel to and from China bodes well, as it increases the demand for vessels transporting various commodities like oil.
Strong LNG Market: Upbeat demand for liquefied natural gas (LNG) represents a huge positive for shipping stocks. The elevated levels of inflation raised oil and natural gas prices. Moreover, amid the prolonged Russia-Ukraine war, Europe is likely to seek gas supplies outside Russia. This is expected to drive demand for LNG vessels.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Shipping industry is a 36-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #98, which places it in the top 39% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright 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.
Before we present a few stocks that you may want to add to your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Underperforms S&P 500 But Outperforms Sector
The Zacks Transportation - Shipping industry hasunderperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 10.8% compared with the S&P 500 Index’s northward movement of 12%. The broader sector has declined 2.7% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 6.35X, compared with the S&P 500’s 18.13X. It is also below the sector’s P/E (F12) reading of 12.79X.
Over the past five years, the industry has traded as high as 20.79X, as low as 3.74X and at the median of 5.67X.
P/E Ratio (Forward 12-Month)
3 Transportation -Shipping Stocks Worth Adding to Your Portfolio
Ardmore Shipping is being well-served by the normalization of economic activities and an uptick in world trade in the post-COVID scenario. Despite hiccups, product tanker rates remain healthy.
The optimism surrounding the stock can be gauged from the fact that ASC shares have gained 8.5% in a month’s time. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 1.2% north. ASC currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here
Price and Consensus: ASC
Kirby is being well-served by increased demand in its distribution and services segment. Favorable market conditions at its marine transportation unit are encouraging as well. KEX currently carries a Zacks Rank #2 (Buy).
The optimism surrounding the stock can be gauged from the fact that KEX shares have gained 2.5% in a month. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 1.6% north.
Price and Consensus: KEX
Teekay Tankers is gaining from the resumption of economic activities and the uptick in world trade. This is because the shipping industry is responsible for transporting several goods involved in world trade.
The Zacks Consensus Estimate for current-year earnings has gained 4.4% over the past 90 days. TNK currently carries a Zacks Rank #2. Shares of TNK have gained 17.6% in a month’s time.
Price and Consensus: TNK
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Kirby Corporation (KEX) : Free Stock Analysis Report
Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
Ardmore Shipping Corporation (ASC) : Free Stock Analysis Report
