If you’ve been following me recently, you know our best strategy right now is to remain invested in stocks that are great inflation hedges. We need to focus our attention on companies that are profiting from rising prices and rates in a few strategic corners of the market, including food staples, marine shipping, semiconductors and oil and natural gas.
But over the last month, marine shipping stocks have suffered.
In today’s Market360, I’m going to share why the downturn won’t last much longer…
And how you can position yourself for profits when the shipping industry’s “divergence window” reverses…
Shipping Stocks Have Taken a Beating
Starting in February, China has experienced the worst wave of COVID cases it has seen since the onset of the pandemic in 2019. With the country’s “zero covid” policies still in place, this has caused lockdowns across the country… including in Shanghai, the world’s busiest container port.
Shanghai has been in lockdown since last month. As a result, the port has had limited operations. It has experienced a surge in containerships anchored offshore, with more than 300 ships waiting to be unloaded at the port at the end of March.
Due to the shutdown, there’s been aggressive selling in several shipping stocks. But I think the pullback will be short lived.
Earlier this week, CNBC reported that we could see a rebound in shipping stocks as early as next week…
Tim Huxley, founder of Mandarin Shipping, told CNBC the container shipping industry could see a “very strong” pickup starting in late April as COVID cases in China decline.
It may take a while for things to completely return to normal, but Huxley says “considerable” comfort can be taken in China’s “incredibly quick” bounce back from its 2020 Covid lockdown.
“As a result, we then had the strongest surge in container freight rates and container shipping demand in history,” he added.
The “Divergence” in Shipping Stocks Is Screaming Buy
The shipping industry is experiencing something my friend and InvestorPlace colleague Luke Lango calls “divergence.” Divergence occurs when a company’s profits continue to climb higher while the share price falls or stays flat. There is a divergence in the fundamentals and how the stock is performing.
But the divergence doesn’t last forever. Eventually, the stock’s price will catch up with its fundamentals. And when that happens… share prices can soar… and fast. We typically see the stock’s price catch up with its fundamentals during earnings season if the company posts better-than-expected earnings results.
Since I only recommend fundamentally superior companies with accelerating earnings and sales growth, this is when my stocks really shine. You can see why earnings season is my favorite time of year!
So, much like me, Luke recommends we invest during a company’s “divergence window” — before share prices rocket higher.
This is a massive wealth-building opportunity. I should add that some of my greatest picks ever developed during one of these divergence windows.
And that’s exactly what we are seeing in the shipping industry right now.
Right now, on the Growth Investor Buy List we own a number of shipping names that the situation in China has beaten down recently, including Costamare, Inc. (NYSE:CMRE), Matson (NYSE:MATX) and ZIM Integrated Shipping Service (NYSE:ZIM). However, strong earnings results should dropkick and drive these stocks higher. In other words, their “divergence window” is about to close.
Costamare is expected to release first-quarter results in late May. First-quarter earnings are forecast to more than triple year-over-year to $0.97 per share, up from $0.31 per share in the same quarter a year ago. First-quarter sales are expected to jump 118.9% year-over-year to $277.46 million.
Matson’s first-quarter results are expected next week. The current consensus estimate calls for earnings of $7.07 per share on $1.12 billion in revenue, which is up from earnings of $1.99 per share and revenue of $661.35 million in the first quarter of 2021.
ZIM will post first-quarter results in mid-May. The analyst community is looking for earnings of $12.53 per share on $3.47 billion in revenue, which translates to 142.4% year-over-year earnings growth and 114.8% year-over-year revenue growth.
These stocks remain characterized by superior fundamentals — and better-than-expected first-quarter results should drive their shares higher in the upcoming weeks….
The fact of the matter is that shipping companies continue to make money hand-over-fist — a trend that I anticipate to continue this year.
Containership prices should remain high (and possibly continue higher) in 2022 due to the suspensions at the Shanghai port and ongoing supply-chain glitches. According to The Journal of Commerce, the containership industry earned $25.4 billion in 2020. That number surged to about $150 billion in 2021. Analysts too are expecting even more money to be made in the containership industry in 2022.
The bottom line: Shipping stocks are great near-term buys. So, if you’re invested in fundamentally superior shipping stocks, don’t be deterred by the recent selling. I fully expect them to bounce like fresh tennis balls — or, as Luke would say, to “diverge” — in the wake of their coming earnings reports.
P.S. Luke just spotted one of the biggest stock market anomalies I’ve ever seen…
A rare phenomenon he’s calling a “1,000% divergence window.”
According to his research, this window has only opened three times in the history of the stock market.
As far as I’m aware, Luke and his team are the only experts who have identified this opportunity in the entire financial industry.
He’s saying this could be a “millionaire-maker” event.
I’ll be honest, after reviewing his research for myself, I agree with him.
As someone who made 30,000% gains from one of these “divergence windows”… I can verify this event could make you decades worth of gains within the span of five years or less.
This is nothing short of a once-in-a-decade opportunity…
As such, Luke and I are keeping a very close eye on this.
When it hits, we’ll be hosting an emergency broadcast to make sure our readers are informed and ready to profit.
Stay tuned — Divergence could be upon us any day now. You don’t want to miss when it hits.
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