It’s a pretty mixed day on Friday as we trade through the last day of the third quarter. For most stocks, it hasn’t been a great stretch, as the S&P 500 sits at fresh 2022 lows. Unfortunately for shipping stocks, we can say the same thing.
However, that’s not the case on Friday.
While it’s been a tough stretch for these stocks and a bad quarter, they are a clear outlier on Friday. Shipping stocks are up anywhere from 3% to 5% on the day. That’s even as the S&P 500 makes new lows in afternoon trading.
Genco Shipping & Trading (NYSE:GNK) shares are up 4.4%, while Eagle Bulk Shipping (NASDAQ:EGLE) shares are up 5.4% so far. These are the two smallest stocks included here, but others are trading well too.
Star Bulk Carriers (NASDAQ:SBLK) and ZIM Integrated Shipping Services (NYSE:ZIM) are each up almost 3% on the day. The latter — ZIM — has the largest market capitalization among the shipping stocks listed here, weighing in at $2.84 billion.
Why Are Shipping Stocks Rallying?
Today’s rally seems to be kickstarted by an analyst upgrade. Stifel analysts initiated coverage of Genco Shipping & Trading with a buy rating and $20 price target. Prior to today’s update, the price target suggested about 66% upside. Specifically, they argued:
“While dry bulk shipping rates have fallen off in recent months, we expect stronger seasonal demand and believe China will recover post-lockdown, given the likelihood of subsequent stimulus. On top of that, the orderbook is at a multi-decade low, so any slight increase in demand should push rates up meaningfully.”
Although the news has been good for a rally today, it has been a tough stretch for this group. Just the stocks above have declined anywhere from 20% to 50% over the last two months.
Interestingly, earlier this week Jefferies analysts downgraded a number of dry bulk carriers to “reflect the decline in dry bulk charter rates.” However, the analysts named Genco, Star Bulk Carriers and Eagle Bulk Shipping as its top picks in the dry bulk space. That’s due to “compelling platforms with low leverage, outsized earnings potential due to their scrubbers, and attractive valuations.”
So should investors buy shipping stocks?
Investors will have to decide if the recent decline in this space has been enough to tempt them on the long side. That said, concerns over a bear market in equities and a global recession will have many skipping these stocks in the near term.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
