The shipping industry is responsible for transporting the majority of goods involved in world trade and is rightfully considered as the life line of the global economy. However, trade related conflict between the United States and China dealt a severe blow to the industry in the second half of 2018.
Recent positive developments on the trade war front and decisions of the Chinese authorities to stimulate the economy will be major catalysts for the shipping industry. In 2019, the shipping industry will be driven by growth in world trade especially the demand from newly-industrialized emerging economies. Consequently, it will be prudent to invest in shipping stocks with a favorable Zacks Rank.
Positive Developments on Trade War Front
On Jan 18, Bloomberg reported that China has offered to ramp up imports from the United State in the next six years. Total value of these imports will be $1 trillion which will bring down the United States’ massive trade deficit with China to zero in 2024.
Notably, the United States had a trade deficit of $323 billion with China in 2018. Although no broad-based agreement has been reached so far, China has already approved five genetically-modified crops for import that is likely to benefit U.S. agricultural exports.
On Jan 16, The Wall Street Journal reported that the U.S. government is contemplating lifting some tariffs imposed on China. This will act as an incentive to the Asian economic giant to make deeper concessions to the United States. However, a Treasury Department spokesperson later denied the report.
On Jan 25, U.S. Treasury Secretary Steven Mnuchin that he is confident of reaching an amicable solution in ongoing trade negotiations between the two countries. The U.S. Trade Representative's office said that China has provided assurance of importing "a substantial amount" of agricultural, energy and manufactured goods and services from the United States.
China Taking Steps to Stimulate Economy
In order to stabilize its economy, Chinese authorities are taking several initiatives. The People’s Bank of China has decided to increase efforts to stimulate growth of the country’s economy by improving credit availability for smaller companies. On Jan 25, China’s central bank stated that it will release about 250 billion yuan ($37 billion) in additional cash to banks.
Additionally, the Chinese central bank has created a bond swap facility that will enable bond holders to swap commercial bank perpetual debt for central bank bills to be utilized for borrowing collateral. All these initiatives have been taken by China in order to cope with ongoing trade conflicts with the United States which resulted into domestic slowdown.
Moreover, the Chinese Ministry of Finance has pledged to cut taxes and augment infrastructure spending which will aid in bolstering market sentiments. A strong Chinese economy will be a boost for the U.S. technology companies as China is the largest market for high-tech products. Additionally, China also plays the role of low-cost supplier of inputs to the high-tech U.S. industries.
Positive developments on the trade war front and economic stimulation by the Chinese authorities will protect the global economy to fall into recession which in turn will boost up demand in other emerging markets. As a result international trade will flourish – the biggest catalyst for the shipping industry.
We have narrowed our search to five such shipping stocks each carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (strong Buy) stocks here.
The chart below shows price performance of our five picks year to date.
Teekay LNG Partners L.P. TGP provides liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies. The company has expected earnings growth of 129.6% for current year. The Zacks Consensus Estimate for the current year has improved by 1.1% over the last 60 days.
Frontline Ltd. FRO engages in the seaborne transportation of crude oil and oil products worldwide. The company has expected earnings growth of 247.4% for current year. The Zacks Consensus Estimate for the current year has improved by 27.3% over the last 60 days.
GasLog Ltd. GLOG is an owner, operator and manager of liquefied natural gas carriers. The company has expected earnings growth of 234.4% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days.
Navios Maritime Acquisition Corp. NNA provides marine transportation services worldwide. The company has expected earnings growth of 81.9% for current year. The Zacks Consensus Estimate for the current year has improved by 48.8% over the last 60 days.
Pyxis Tankers Inc. PXS operates as a maritime transportation company with a focus on the tanker sector in the United States. The company has expected earnings growth of 21.4% for current year. The Zacks Consensus Estimate for the current year has improved by 9.1% over the last 60 days.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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