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3 Shipping Stocks to Bet On From a Thriving Industry
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The Zacks Transportation - Shipping industry is benefiting from an improvement in demand for goods and commodities from pandemic lows. Moreover, the prevalent tensions in the Red Sea and the resultant limited container availability caused a surge in freight costs. The re-opening of the China economy came as good news for the industry participants. The strong outlook for the Capesize market also bodes well for shipping stocks.
In the prevalent scenario, we advise investors to buy shipping stocks like Danaos Corporation (DAC - Free Report) , Costamare (CMRE - Free Report) and Seanergy Maritime Holdings (SHIP - Free Report) .
Industry Overview
The companies belonging to the Zacks Transportation - Shipping industry, which is cyclical in nature, offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with energy and utility bigwigs. Most participants focus on the seaborne transportation of crude oil and other oil products, globally. The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape following the pandemic implies that shippers are relying more on third-party logistics providers. The well-being of the industry participants is directly proportional to the health of the economy. With economic activities gaining momentum, after coming to a standstill during COVID-19, the shipping industry is growing again.
4 Key Investing Trends to Watch in the Transportation-Shipping Industry
Economic Uncertainty Remains: The hotter-than-expected inflation reading for March has dashed hopes of an interest rate cut by the Fed in the near term. Per data from the Labor Department, the consumer price index rose 0.4% sequentially in March, surpassing economists’ expectations. On a year-over-year basis, the Consumer Price Index rose 3.5% in March, beating the consensus estimate of a 3.4% increase. Moreover, the March rise, following a 3.2% jump in February, was the highest since September 2023. The unfavorable inflation data has led to a rise in volatility, as reflected in the readings of Wall Street’s fear gauge, better known as the Cboe Volatility Index or VIX. Following three straight months of increases in inflation, it is natural to believe that rate cuts are not a possibility in the near term. Fears of a delayed rate cut may make the markets volatile for a long period. Rising economic uncertainty does not bode well for shipping stocks.
Red Sea Tensions Boost Freight Rates: The attacks by Yemen’s Houthi militants on vessels in the Red Sea disrupted maritime trade. As a result, many shipping companies hit the pause button as far as transit through this route is concerned. Keeping the safety of their crew in mind, they have adopted the longer and costlier route around the Cape of Good Hope in South Africa rather than through the Suez Canal. The reduced container availability due to the Red Sea tensions has resulted in a rise in freight costs. Lower capacity is expected to boost earnings. Rates are likely to remain high for quite some time, which may translate into further upside potential for shipping stocks.
Upbeat LPG Demand a Positive:The buoyant demand scenario pertaining to the export of liquefied petroleum gas, or LPG, has served the U.S. economy well. This is because the United States is the largest exporter of gases like propane and butane. This has boosted the prospects of transporters of LPG. Notably, sea-borne LPG gas volumes have risen since the pandemic and afterward.
Improving Capesize Market Sentiment: The Capesize market has undergone the strongest first quarter since 2011. This reflects strong demand for dry bulk commodities from not only China but also the rest of the world and bodes well for dry bulk shipping companies. In fact, with the reopening of the Chinese economy, the entire shipping industry heaved a sigh of relief. This is because ocean shipping is hugely dependent on China, which is not only a key manufacturing hub but also sees a significantly high demand for goods and services courtesy of its large population.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Shipping industry is a 37-stock group within the broader Zacks sector. The industry currently carries a Zacks Industry Rank #53, which places it in the top 21% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to add to your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Underperforms S&P 500 but Outperforms Sector
The Zacks Transportation - Shipping industry has underperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 16.7% compared with the S&P 500’s northward movement of 24.2%. The broader sector has gained 11.2% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 6.47X, compared with the S&P 500’s 20.88X. It is also below the sector’s P/E (F12) reading of 16.32X.
Over the past five years, the industry has traded as high as 18.71X, as low as 3.84X and at the median of 5.63X.
P/E Ratio (Forward 12-Month)
3 Transportation -Shipping Stocks to Keep a Tab On
Athens, Greece-based Danaos is benefiting from an expanded fleet and higher charter rates. Efforts to reduce debt levels also bode well for DAC.
The stock has gained 19.6% in a year’s time. Currently sporting a Zacks Rank #1 (Strong Buy), Danaos has seen the Zacks Consensus Estimate for 2024 earnings being revised 7.3% upward over the past 60 days.
Seanergy Maritime Holdings is a dry bulk shipping company. SHIP is benefitting from the improving sentiment pertaining to the Capesize market. The company’s strong cash balance also bodes well.
The stock has gained 41% over the past six months. Currently sporting a Zacks Rank #1, SHIP has seen the Zacks Consensus Estimate for 2024 earnings being revised 38.3% upward over the past 60 days.
Price and Consensus: SHIP
Costamare owns containerships that are chartered to liner companies. The company deploys its containership fleet principally under multi-year time charters with leading liner companies that operate regularly scheduled routes between large commercial ports.
CMRE currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2024 earnings has been revised 2.3% upward over the past 60 days. CMRE currently has a Value Score of A.
Price and Consensus: CMRE
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3 Shipping Stocks to Bet On From a Thriving Industry
The Zacks Transportation - Shipping industry is benefiting from an improvement in demand for goods and commodities from pandemic lows. Moreover, the prevalent tensions in the Red Sea and the resultant limited container availability caused a surge in freight costs. The re-opening of the China economy came as good news for the industry participants. The strong outlook for the Capesize market also bodes well for shipping stocks.
In the prevalent scenario, we advise investors to buy shipping stocks like Danaos Corporation (DAC - Free Report) , Costamare (CMRE - Free Report) and Seanergy Maritime Holdings (SHIP - Free Report) .
Industry Overview
The companies belonging to the Zacks Transportation - Shipping industry, which is cyclical in nature, offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with energy and utility bigwigs. Most participants focus on the seaborne transportation of crude oil and other oil products, globally. The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape following the pandemic implies that shippers are relying more on third-party logistics providers. The well-being of the industry participants is directly proportional to the health of the economy. With economic activities gaining momentum, after coming to a standstill during COVID-19, the shipping industry is growing again.
4 Key Investing Trends to Watch in the Transportation-Shipping Industry
Economic Uncertainty Remains: The hotter-than-expected inflation reading for March has dashed hopes of an interest rate cut by the Fed in the near term. Per data from the Labor Department, the consumer price index rose 0.4% sequentially in March, surpassing economists’ expectations. On a year-over-year basis, the Consumer Price Index rose 3.5% in March, beating the consensus estimate of a 3.4% increase. Moreover, the March rise, following a 3.2% jump in February, was the highest since September 2023. The unfavorable inflation data has led to a rise in volatility, as reflected in the readings of Wall Street’s fear gauge, better known as the Cboe Volatility Index or VIX. Following three straight months of increases in inflation, it is natural to believe that rate cuts are not a possibility in the near term. Fears of a delayed rate cut may make the markets volatile for a long period. Rising economic uncertainty does not bode well for shipping stocks.
Red Sea Tensions Boost Freight Rates: The attacks by Yemen’s Houthi militants on vessels in the Red Sea disrupted maritime trade. As a result, many shipping companies hit the pause button as far as transit through this route is concerned. Keeping the safety of their crew in mind, they have adopted the longer and costlier route around the Cape of Good Hope in South Africa rather than through the Suez Canal. The reduced container availability due to the Red Sea tensions has resulted in a rise in freight costs. Lower capacity is expected to boost earnings. Rates are likely to remain high for quite some time, which may translate into further upside potential for shipping stocks.
Upbeat LPG Demand a Positive:The buoyant demand scenario pertaining to the export of liquefied petroleum gas, or LPG, has served the U.S. economy well. This is because the United States is the largest exporter of gases like propane and butane. This has boosted the prospects of transporters of LPG. Notably, sea-borne LPG gas volumes have risen since the pandemic and afterward.
Improving Capesize Market Sentiment: The Capesize market has undergone the strongest first quarter since 2011. This reflects strong demand for dry bulk commodities from not only China but also the rest of the world and bodes well for dry bulk shipping companies. In fact, with the reopening of the Chinese economy, the entire shipping industry heaved a sigh of relief. This is because ocean shipping is hugely dependent on China, which is not only a key manufacturing hub but also sees a significantly high demand for goods and services courtesy of its large population.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Shipping industry is a 37-stock group within the broader Zacks sector. The industry currently carries a Zacks Industry Rank #53, which places it in the top 21% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to add to your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Underperforms S&P 500 but Outperforms Sector
The Zacks Transportation - Shipping industry has underperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 16.7% compared with the S&P 500’s northward movement of 24.2%. The broader sector has gained 11.2% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 6.47X, compared with the S&P 500’s 20.88X. It is also below the sector’s P/E (F12) reading of 16.32X.
Over the past five years, the industry has traded as high as 18.71X, as low as 3.84X and at the median of 5.63X.
P/E Ratio (Forward 12-Month)
3 Transportation -Shipping Stocks to Keep a Tab On
Athens, Greece-based Danaos is benefiting from an expanded fleet and higher charter rates. Efforts to reduce debt levels also bode well for DAC.
The stock has gained 19.6% in a year’s time. Currently sporting a Zacks Rank #1 (Strong Buy), Danaos has seen the Zacks Consensus Estimate for 2024 earnings being revised 7.3% upward over the past 60 days.
You can see the complete list of today’s Zacks #1 Rank stocks here
Price and Consensus: DAC
Seanergy Maritime Holdings is a dry bulk shipping company. SHIP is benefitting from the improving sentiment pertaining to the Capesize market. The company’s strong cash balance also bodes well.
The stock has gained 41% over the past six months. Currently sporting a Zacks Rank #1, SHIP has seen the Zacks Consensus Estimate for 2024 earnings being revised 38.3% upward over the past 60 days.
Price and Consensus: SHIP
Costamare owns containerships that are chartered to liner companies. The company deploys its containership fleet principally under multi-year time charters with leading liner companies that operate regularly scheduled routes between large commercial ports.
CMRE currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2024 earnings has been revised 2.3% upward over the past 60 days. CMRE currently has a Value Score of A.
Price and Consensus: CMRE