Today, I will discuss the six best shipping stocks to buy now. These stocks are currently very cheap, many have very low price-to-earnings (P/E) valuations and all of the stocks on this list pay dividends. That makes them good value stocks worth buying now.
These stocks typically will show positive earnings guidance for the coming year. This inherently means that the earnings multiple will be lower for the coming year, based on higher earnings.
We can take for granted in our analysis that shipping volumes are likely to be lower for this year and next year. But even despite this, if the company is able to lower its costs despite that headwind and make higher earnings, that stock is worth buying.
In addition, all of these companies not only pay dividends, but many are buying back their own shares. That will allow the company to raise its dividend next year, even if it keeps the cost of its dividend level to the company level.
Let’s dive in and look at these stocks:
|UPS||United Parcel Service, Inc.||$185.18|
|TFII||TFI International Inc.||$84.93|
|MRTN||Marten Transport, Ltd.||$16.71|
|GNK||Genco Shipping & Trading Limited||$16.92|
|EGLE||Eagle Bulk Shipping Inc.||$44.62|
Best Shipping Stocks: United Parcel Service (UPS)
- Market Cap: $161.6 billion
United Parcel Service (NYSE:UPS) will likely show lower volumes this year and next. Nevertheless, analysts still project 5% higher revenue this year to $100.3 billion and 3.3% higher revenue for 2023 to $105.6 billion. In addition, the average of 28 analysts’ forecasts shows that earnings per share (EPS) will rise 5% this year to $12.74 from $12.13 last year, and 4% next year to $13.25.
In other words, despite lower volumes, its price increases will allow the company to keep growing. However, if the U.S. enters a deep recession, this could eventually drag down those earnings forecasts.
But here is the thing. That possibility is already discounted in the stock valuation for UPS stock. For example, its forward P/E multiple is now below 14x for next year. That is well below the 16.48x multiple averages for the past five years, according to Morningstar.
Moreover, UPS has raised its dividend per share every year for the past 22 years. This year, it hiked it 49% to $6.08 per share. That effectively raised the dividend payout ratio to about 48%. That kind of hike won’t likely occur again, but investors can still expect management to raise the dividend early next year.
Additionally, UPS has started buying back its shares. Last quarter, it spent $254 million on share repurchases. That works out to over $1 billion annually, or 0.6% of its market cap.
Meanwhile, investors gain the benefit of a 3.29% dividend yield. That, again, is well over the 2.89% average dividend yield for the past five years. This implies that UPS stock is undervalued by 12.6%. This is because its price target at a 2.89% yield with $6.08 in dividends is $210.38 (i.e., $6.08/0.0289 = $210.38).
FedEx Corporation (FDX)
- Market Cap: $58 billion
FedEx Corporation (NYSE:FDX) is likely to show volume decreases this year, but its revenue and earnings are still forecast to rise both this year and next. For example, 28 analysts have an average 5.3% higher revenue forecast to 98.5 billion in 2022 and a 3.3% higher sales gain in 2023.
Moreover, these analysts also project higher earnings this year and next. The average for this year is 10.8% higher at $22.83 and 10.5% higher in 2023 at $25.22. This shows that despite the volume degradation this year and next, FedEx is able to raise prices and cut costs enough to continue making solid growth.
That puts FDX stock on a cheap forward P/E multiple of just 9.2x for next year. That is well below its five-year historical average of 13.5x.
Moreover, FedEx raised its dividend 53% this year to $4.60, effectively hiking its payout ratio to 20%. This is well below the payout ratio at UPS, implying that FDX stock could have a higher rate increase going forward.
Moreover, FedEx is producing large amounts of free cash flow (FCF). Although it did not repurchase shares last quarter, it could do so in the future with its large FCF.
All of these factors make FDX stock one of the best shipping stocks on this list.
Best Shipping Stocks: TFI International (TFII)
- Market Cap: $7.37 billion
TFI International (NYSE:TFII) is a large-cap trucking company that operates in the Package and Courier, Less-Than-Truckload (LTL), Truckload (TL), and Logistics segments. Based in Canada, it operates throughout the U.S., as well. As of Dec. 31, 2021, the company had 13,384 tractors, 50,091 trailers, and 9,428 independent contractors. The company is formerly known as TransForce Inc.
The interesting thing about this trucking company is that despite all the projections for a recession, analysts are still projecting higher revenue and earnings for this year and level sales next year. For example, this year, sales are forecast to rise 23.9% to $8.94 billion from $7.22 billion last year. Even 2023 shows a slight decline to $8.88 billion from $8.94 billion.
But earnings are still forecast to rise 4.4% to $6.92 in 2023 after a projection of 27% gains this year from $5.23 per share to $6.63 in 2022. That puts the stock on a cheap forward P/E multiple of just 12.6 times for 2022 and 12.1 for 2023. This is very cheap, especially in relation to its five-year average of 14.4x in forward P/E multiples, according to Morningstar.
Moreover, TFII stock pays a $1.08 dividend per share, putting the stock on an attractive yield of 1.34%. This allows investors to be paid while they wait for the underlying value of the stock to emerge.
Marten Transport (MRTN)
- Market Cap: $1.4 billion
Marten Transport (NASDAQ:MRTN) is another cheap trucking company stock that operates in four segments: truckload, dedicated, intermodal, and brokerage. Analysts project 17.7% revenue growth this year to $1.15 billion and up to 6.3% growth next year to $1.22 billion.
Moreover, earnings estimates are still solidly profitable for this year at $1.30 per share, up 27.5%, and slightly higher at $1.33 next year. I suspect that this will change once the second-quarter (Q2) earnings and company forecasts come out.
However, unless volume sank dramatically and costs soared in Q2, the stock still looks like a bargain at just 12.9x earnings for this year. Moreover, the company pays a dividend of 24 cents per share annually, which is well-covered by its $1.30 EPS projections for 2022. That gives MRTN stock a decent yield of 1.43%. That even allows room for the company to increase its payout ratio at some point.
Moreover, Marten Transport is producing solid FCF and is using that to buy back $26 million in shares in the last quarter. At that annualized run rate of $105 million, then it could be eliminating 7.5% of its shares annually, assuming the stock does not rise much. This will easily allow MRTN management to keep raising the dividend as it did this year by 50%.
That makes Marten one of the best shipping stocks going forward, given its cheap valuation.
Best Shipping Stocks: Genco Shipping & Trading (GNK)
- Market Cap: $743 million
Genco Shipping & Trading (NYSE:GNK) is a U.S.-based dry bulk ocean liner carrier that recently raised its dividend very dramatically. This is based on its potential earnings this year of $4.65 forecast for this year and $4.07 next year, according to six analysts surveyed by Seeking Alpha.
Based on this, the company raised its quarterly dividend to 79 cents, up from 69 cents in Q1. The new dividend will likely be announced in the first week of August.
If it is kept at 79 cents, that puts it on a run rate of $3.16 per share, or about 68% of its projected earnings. That also means the stock has a huge 18.6% dividend yield since the price is only $16.96 as of Jul. 7. Obviously, the market does not expect the company will be able to maintain this level of earnings and dividends going forward.
Interestingly, this company is not saddled with much debt, at least as of Q1. Its book value is higher than the stock market value. For example, tangible book value per share was $22.18 as of Mar. 31. That means the stock, at $16.98, is only 76.6% of this figure. That implies that if the company were to be liquidated, investors would make over 30%.
Assuming shipping volumes don’t slide dramatically from a global recession, this is one of the cheapest and best shipping stocks.
Best Shipping Stocks: Eagle Bulk Shipping (EGLE)
- Market Cap: $627.6 million
Eagle Bulk Shipping (NASDAQ:EGLE) is another dry bulk ocean cargo carrier based in Stamford, Connecticut. The company has 53 vessels as of the end of last year.
The key reason to buy this stock is its huge dividend yield. For example, last quarter, the company paid out $2 per share, slightly lower than the $2.05 paid out in Q1. Assuming it keeps paying $2 quarterly, its $8 annual rate works out to an 18.15% dividend yield at its price of $44.08 on Jul. 7.
This represents a payout of 45% of its forecast earnings of $17.73 for this year. However, next year, analysts forecast much lower earnings of just $11 per share, according to Seeking Alpha.
That means if the payout ratio stays the same, the dividend could fall to between $4.95 to $5 per share. That would lower the dividend yield at today’s price to 11.34%. More likely, the stock could fall, keeping the dividend yield high.
This shows that there is some risk here. However, keep in mind that EGLE stock is very cheap on a price-to-tangible book value (TBV) basis. The TBV per share is $53.42 as of Mar. 31. So at $44.08, the stock is below that at just 82.5% of its TBV. That could limit the downside in the stock, even if the dividend payments are lower going forward. That helps reduce the risk in owning this stock.
On the date of publication, Mark Hake did not hold (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.