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3 Shipping Stocks Worth Betting on Despite Industry Headwinds

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Stocks in the Zacks Transportation - Shipping industry are responsible for transporting the bulk of goods involved in global trade. Currently, players in this industry are stung by supply-chain woes, high operating costs and economic uncertainties. Northbound fuel expenses are hurting their bottom lines.

Despite the challenges, we believe that stocks like GasLog Partners (GLOP - Free Report) , Teekay Tankers (TNK - Free Report) and Scorpio Tankers (STNG - Free Report) should grace one’s portfolio, given the improvement in the demand scenario from the pandemic lows. High tanker rates also support top-line growth.

About the Industry

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 parti

3 Key Investing Trends to Watch in the Transportation - Shipping Industry

Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent shipping stocks. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply-chain troubles. The spike in fuel costs is also flaring up the operating expenses of the industry players.

Increased Tanker Rates: Tanker rates, which have been high so far this year, will likely remain steep, at least in the near term. The favorable tanker rates are likely to aid the top-line performances of stocks like Scorpio Tankers and Teekay Tankers.

Economic Uncertainties: In September 2022, the Fed raised its core interest rate by another 75 basis points. This meant that the central bank has hiked interest rates 300 basis points so far this year. The Fed vowed to sustain its interest rate-hiking strategy to curb extreme inflationary pressures, persisting at a four-decade high. Interest rate hikes do not bode well for the industry as the same shoots up finance costs and potentially weakens borrowing and lending activities, thus heightening the risk of economic slowdown. Sluggishness induced weakness in Asia and service challenges in Europe, which are contracting shipping volumes. This does not bode well for the industry participants.

Zacks Industry Rank Indicates Dim Prospects

The Zacks Transportation - Shipping industry is a 39-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #184, which places it in the bottom 27% of 250 plus Zacks industries.

The group’s Zacks 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.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Before we present a few shipping stocks that you may want to invest in, let’s look at the industry’s recent stock-market performance and its valuation picture.

Industry Outperforms S&P 500 and Sector

The Zacks Transportation - Shipping industry has outperformed the Zacks S&P 500 composite and the broader Transportation Sector over the past year.

The industry has gained 26.2% over this period against the S&P 500’s depreciation of 13.4% and the broader sector’s decline of 10%.

One-Year Price Performance

The Valuation Picture

Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 3.28X compared with the S&P 500’s 12.21X. It is also below the sector’s trailing-12-month EV/EBITDA of 10.87X.

Over the past five years, the industry has traded as high as 15.18X, as low as 2.88X and at the median of 7.35X.

Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

3 Transportation -Shipping Stocks Worth Adding to Your Portfolio

Teekay Tankers: TNK is being well-served by the increase in tanker rates. A gradual ramp-up in economic activities also bodes well. High fuel costs are, however, weighing on the bottom line.

Teekay Tankers currently sports a Zacks Rank #1 (Strong Buy). TNK’s shares have soared 180.2% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 57.7% north.

You can see the complete list of today’s Zacks #1 Rank stocks here 

Price and Consensus: TNK

 

GasLog Partners: GasLog owns, operates and acquires LNG carriers with multi-year charters. The firm charges customers for transporting their LNG using its LNG carriers.

GasLog currently flaunts a Zacks Rank of 1. GLOP’s shares have soared 65% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 42.7% north.

Price and Consensus: GLOP

Scorpio Tankers is engaged in the seaborne transportation of refined petroleum products via the global shipping markets. Efforts to upgrade its fleet are commendable. An uptick in voyage revenues with the rise in passengers augurs well for this shipping stock, carrying a Zacks Rank #2 (Buy), at present.

The STNG stock has soared 257% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 23.6% north.

 

Price and Consensus: STNG



In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


GasLog Partners LP (GLOP) - free report >>

Teekay Tankers Ltd. (TNK) - free report >>

Scorpio Tankers Inc. (STNG) - free report >>

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