The ZacksTransportation - Shippingindustry is suffering from headwinds like inflationary pressure, the resultant high interest rates and supply-chain disruptions. However, the recent tensions in the Red Sea have boosted shipping stocks as limited container availability has driven up freight costs.
In the prevalent scenario, we advise investors to focus on Dorian LPG (LPG - Free Report) , ZIM Integrated Shipping Services (ZIM - Free Report) and Ardmore Shipping Corporation (ASC - Free Report) .
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 due to the coronavirus impact 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. The resumption of economic activities after coming to a standstill during COVID-19 bodes well for the industry.
4 Key Investing Trends to Watch in the Transportation-Shipping Industry
Supply-Chain Disruptions: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply-chain woes, high fuel expenses and labor troubles.
Economic Uncertainty Remains: Agreed that signs of easing inflation have brought some sort of relief for U.S. stock markets but the fact remains that we are far from being out of the woods. Inflation is still above the Federal Reserve’s 2% target. The rise in inflation for the month of December is a cause for concern and has once again dampened investors’ spirits, as they will once again try to gauge the Fed’s next course of action with interest rates. Rising inflation can turn markets more volatile in the coming days. Rising economic uncertainty does not bode well for shipping stocks.
Red Sea Tensions Boost Freight Rates: The recent attacks by Yemen’s Houthi militants on vessels in the Red Sea have disrupted maritime trade. As a result, many shipping companies have hit the pause button as far as transit through this route is concerned. Keeping the safety of the crew in mind, they are adopting the longer and costlier route around the Cape of Good Hope in South Africa rather than through the Suez Canal. 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: The buoyant demand scenario pertaining to the export of liquefied petroleum gas (“LPG”) like propane has served the U.S. economy well. The country 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 been on the rise since the pandemic.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Shipping industry is a 38-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #202, which places it in the bottom 18% of 250 plus Zacks industries.
The group’sZacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates murky 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 consider, 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 22.2% compared with the S&P 500 Index’s northward movement of 22.8%. The broader sector has declined 4.6% 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 6.31X, compared with the S&P 500’s 19.9X. It is also below the sector’s P/E (F12) reading of 14.92X.
Over the past five years, the industry has traded as high as 18.7X, as low as 3.74X and at the median of 5.62X.
P/E Ratio (Forward 12-Month)
3 Transportation - Shipping Stocks to Keep a Tab On
Dorian LPG operates a fleet of large gas carriers for transporting liquefied petroleum gases like propane and butane on long-haul voyages, mainly from the United States and the Middle East to Asia. The increased demand for liquefied petroleum gases from Asia has been a huge positive for the company headquartered in Stamford. The stock has surged 68.7% over the past six months.
Dorian currently sports a Zacks Rank #1 (Strong Buy) and has a Growth Score of B. The Zacks Consensus Estimate for its 2024 earnings has surged 135.6% over the past 60 days.
Price and Consensus: LPG
ZIM Integrated Shipping Services is based in Israel. Shares of this shipping company have surged 43.9% in a month’s time. ZIM provides service to the East Mediterranean and Israeli ports.
ZIM currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2024 earnings has been revised 55.8% upward over the past 60 days. ZIM currently has a Momentum Score of A.
Price and Consensus: ZIM
Ardmore Shipping is being well-served by the normalization of economic activities and an uptick in world trade in the post-COVID scenario. Despite hiccups, product tanker rates remain healthy.
Shares of ASC have gained 3.4% in a month’s time. Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has moved 2.9% north. ASC currently carries a Zacks Rank #3 and has a Growth Score of B.
Price and Consensus: ASC
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Concepts in the Article
The article discusses several key concepts related to the transportation and shipping industry, including:
Inflationary Pressure and High Interest Rates: The shipping industry is facing headwinds due to inflationary pressure and high interest rates, which are impacting freight costs and overall operations.
Supply-Chain Disruptions: Ongoing supply-chain disruptions are affecting the industry, leading to increased operating costs and limiting bottom-line growth.
Red Sea Tensions: Recent tensions in the Red Sea have disrupted maritime trade, leading to limited container availability and driving up freight costs. This has boosted shipping stocks.
Liquefied Natural Gas (LNG) and Crude Oil Marine Transportation Services: Companies in the industry offer LNG and crude oil marine transportation services under long-term, fixed-rate contracts with energy and utility companies.
Economic Uncertainty: The article highlights the impact of economic uncertainty on shipping stocks, particularly in relation to inflation and interest rates.
LPG Demand: The buoyant demand for the export of liquefied petroleum gas (LPG) has positively impacted transporters of LPG, particularly in the context of rising sea-borne LPG gas volumes.
Industry Performance and Valuation: The article provides insights into the industry's recent stock-market performance, valuation, and forward 12-month price-to-earnings (P/E) ratio.
Key Shipping Companies: The article recommends focusing on specific shipping companies, including Dorian LPG, ZIM Integrated Shipping Services, and Ardmore Shipping Corporation, based on their performance and growth prospects.
These concepts provide a comprehensive overview of the challenges and opportunities within the transportation and shipping industry, as well as specific recommendations for investors.
I hope this information provides a clear understanding of the key concepts discussed in the article. If you have any further questions or need more details on any specific aspect, feel free to ask!