The selloff in all things related to resources has spilled over into the shipping stocks as well. After all, if everyone already has enough raw materials they aren’t using any way, who is going to need to ship stuff?
While the selloff hasn’t been as steep as it could have been, the miners and drillers of the world are trading back down near their annual lows. While the pace of economic growth in the world is indeed slow at best, I am not sure that the current pricing in some of the shippers is justified right now.
Taking a longer-term perspective, I think that demand for oil, coal, food products and other goods will pick up over the next five years so, and investors who take advantage of the discounted pricing currently available will benefit greatly from an eventual recovery in the global shipping industry.
The smart and patient money appears to think so. Private equity funds are still quietly making investments in the industry on very attractive prices. Investors of distressed companies have become major players in the global shipping industry. Embarcadero Maritime, a partnership between KKR (KKR) and Borealis Maritime to invest in distressed shipping assets, just closed on a deal to buy nine container ships anticipating market improvements in the years ahead.
Investors might want to consider the same approach to shipping stocks.
Nordic American Tankers (NAT)
Bermuda-based Nordic American Tankers (NAT) has a fleet of 22 Suezmax class tankers that carry crude oil around the world. Nordic American has kept debt low and reinforced the balance sheet with an equity offering earlier this year.
Business is not bad as Nordic American has grown revenues and reduced bottom-line losses so far this year. In the last earnings report, Nordic American looked forward to better market conditions saying,
“[Nordic American] is well placed to take advantage of strong shipping markets, which can be expected to be reflected in increased dividend payouts immediately following a market upswing.”
At the current price, NAT stock is trading at just 76% of book value, which means Nordic American is certainly cheap on an asset basis. The current yield is 5.99%. So, Nordic American pays investors handsomely while waiting for industry conditions to improve.
Safe Bulkers (SB)
Safe Bulkers (SB) has a fleet of 30 dry bulk vessels that carry things like coal, grain, and iron ore all over the globe. Safe Bulkers is seeing weak results as a result of the global economic weakness and low shipping rates.
However, Safe Bulkers appears to be financially strong enough to survive until conditions improve, and SB stock is cheap at the current price. Safe Bulkers is trading at just 80% of book value and yielding 3.52%.
The shipping industry may take several years to recover, but if you think like a private equity investor and can wait five to seven years, returns measured in multiples of the current price will likely reward your patience with your shipping investments.
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