Ship Finance International Limited (SFL) — Shares of SFL stock have been hit hard recently, falling roughly 30% in the past three months.
The company owns an international fleet of oil tankers that it leases through long-term, fixed-rate charters. S&P Capital IQ Equity Research is cautious on the tanker sector, which it says faces weak global demand.
Capital IQ rates SFL stock a “Hold.” Its analysts note Ship Finance International faces headwinds from rising shale oil production in the United States, which does not require tankers for transportation. They note additional potential risks may include higher-than-expected new tanker capacity, lower charter rates and unscheduled downtime.
The company pays an annual dividend of $1.80 per share, for a current yield of 14.8%, which it may end up cutting if hard times continue.
SFL stock plunged 4.4% on Jan. 12 after competitor Teekay Tankers Ltd. (TNK) was downgraded by JPMorgan from “Overweight” to “Underweight.”
The sell-off resulted in shares breaking down through support at $15. SFL stock then fell below $12 in just five trading sessions. From there, shares rallied back above $13 by the end of the month, but dropped sharply to a closing low of $10.31 on Feb. 11.
The decline came on high volume, which could have resulted in a selling climax. However, the failure to hold above $13 casts doubt that a bottom has formed.
Sell SFL stock short at $12 with a downside target of at least $10.50, which would result in a gain of at least 12.5%. Be sure to enter a stop-loss order at $13.50 to protect against the possibility of theoretically unlimited losses in the event of a rally.
Also, be aware that if you hold shares short through a dividend, you will be responsible for covering it. SFL stock is expected to go ex-dividend in early March.
