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3 Shipping Stocks Worth Betting on Despite Industry Challenges
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The Zacks Transportation - Shipping industry faces challenges due to still-high inflation, tariff-related tensions and lingering supply-chain disruptions. Geopolitical and environmental woes represent further challenges.
Despite the uncertainty concerning demand, the industry demonstrates resilience, especially for companies prioritizing growth and operational efficiency. Companies like FLEX LNG Ltd. (FLNG - Free Report) , Euroseas Limited (ESEA - Free Report) and KNOT Offshore Partners (KNOP - Free Report) stand out for their ability to navigate these challenges.
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 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.
3 Shipping Industry Trends in Focus
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. Due to supply-chain troubles, costs will likely continue to be steep going forward. Shipping costs are on the rise due to the Red Sea crisis.
Increasing operational costs and wage pressures weigh on shipping stocks’ financial performance. Slower recovery in discretionary spending creates headwinds. Together, these factors underscore the need for careful cost management and strategic planning to navigate short-term pressures in an evolving market environment.
Tariff Turmoil: Although signs of trade tensions easing have emerged, until a concrete long-term trade deal is inked, we are not out of the woods as far as this uncertainty is concerned. As a result, the shipping industry, which is responsible for transporting goods involved in world trade, is likely to continue suffering from a demand slowdown at least in the short term. The slowdown in trade may disrupt trade routes, bringing down goods transportation and, in turn, hurting the industry players. This trade war is expected to result in increased volatility and uncertainty going forward.
Environmental Woes: The shipping industry accounts for a significant part of the world's greenhouse gas emissions, which have increased significantly in the last decade. The International Maritime Organization or IMO aims to reduce greenhouse gas emissions from ships by at least 20% by 2030. The industry's aim to reduce carbon emissions may suffer a setback as the Red Sea crisis compels it to use more vessels and take longer routes to ensure the smooth sailing of global maritime trade. The longer travel times are increasing total fleet emissions for the same amount of cargo. The disruption has naturally raised doubts about the industry's ability to meet the IMO's above mandate.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Shipping industry falls within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #171, which places it in the bottom 30% of 244 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth. As a matter of fact, the industry’s earnings estimate for 2025 has gone down 26.6% year over year.
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 and Sector
The Zacks Transportation - Shipping industry has lagged the Zacks S&P 500 composite index as well as the broader sector over the past year.
Over this period, the industry has declined by 33% against the S&P 500 Index’s northward movement of 11.9%. The broader sector has moved 9.1% south in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 6.37X, compared with the S&P 500’s 21.94X. It is also below the sector’s P/E (F12) reading of 14.09X.
Over the past five years, the industry has traded as high as 10.54X, as low as 3.84X and at the median of 5.87X.
P/E Ratio (Forward 12-Month)
3 Transportation-Shipping Stocks to Buy Now
FLEX LNG: Impressive demand for LNG bodes well for FLNG. Efforts to reward its shareholders through dividends attest the company’s financial well-being.
FLEX LNG currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2026 earnings implies an increase of 8% on a year-over-year basis.
Euroseas is an owner and operator of container carrier vessels and a provider of seaborne transportation for containerized cargoes. The company has been benefiting from profitable contracts and maintains a time charter equivalent rate of more than $30,000 per day.
The stock has gained 5% over the past year. The company currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2025 earnings has increased 2.1% over the past 60 days.
Price and Consensus: ESEA
KNOT Offshore is engaged in owning, acquiring, and operating shuttle tankers designed to transport crude oil and condensates from offshore oil field installations to onshore terminals and refineries.
The stock currently carries a Zacks Rank #2. KNOP surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark in the other quarter). The average beat was 314.3%.
Price and Consensus: KNOP
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3 Shipping Stocks Worth Betting on Despite Industry Challenges
The Zacks Transportation - Shipping industry faces challenges due to still-high inflation, tariff-related tensions and lingering supply-chain disruptions. Geopolitical and environmental woes represent further challenges.
Despite the uncertainty concerning demand, the industry demonstrates resilience, especially for companies prioritizing growth and operational efficiency. Companies like FLEX LNG Ltd. (FLNG - Free Report) , Euroseas Limited (ESEA - Free Report) and KNOT Offshore Partners (KNOP - Free Report) stand out for their ability to navigate these challenges.
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 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.
3 Shipping Industry Trends in Focus
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. Due to supply-chain troubles, costs will likely continue to be steep going forward. Shipping costs are on the rise due to the Red Sea crisis.
Increasing operational costs and wage pressures weigh on shipping stocks’ financial performance. Slower recovery in discretionary spending creates headwinds. Together, these factors underscore the need for careful cost management and strategic planning to navigate short-term pressures in an evolving market environment.
Tariff Turmoil: Although signs of trade tensions easing have emerged, until a concrete long-term trade deal is inked, we are not out of the woods as far as this uncertainty is concerned. As a result, the shipping industry, which is responsible for transporting goods involved in world trade, is likely to continue suffering from a demand slowdown at least in the short term. The slowdown in trade may disrupt trade routes, bringing down goods transportation and, in turn, hurting the industry players. This trade war is expected to result in increased volatility and uncertainty going forward.
Environmental Woes: The shipping industry accounts for a significant part of the world's greenhouse gas emissions, which have increased significantly in the last decade. The International Maritime Organization or IMO aims to reduce greenhouse gas emissions from ships by at least 20% by 2030. The industry's aim to reduce carbon emissions may suffer a setback as the Red Sea crisis compels it to use more vessels and take longer routes to ensure the smooth sailing of global maritime trade. The longer travel times are increasing total fleet emissions for the same amount of cargo. The disruption has naturally raised doubts about the industry's ability to meet the IMO's above mandate.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Shipping industry falls within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #171, which places it in the bottom 30% of 244 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth. As a matter of fact, the industry’s earnings estimate for 2025 has gone down 26.6% year over year.
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 and Sector
The Zacks Transportation - Shipping industry has lagged the Zacks S&P 500 composite index as well as the broader sector over the past year.
Over this period, the industry has declined by 33% against the S&P 500 Index’s northward movement of 11.9%. The broader sector has moved 9.1% south in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 6.37X, compared with the S&P 500’s 21.94X. It is also below the sector’s P/E (F12) reading of 14.09X.
Over the past five years, the industry has traded as high as 10.54X, as low as 3.84X and at the median of 5.87X.
P/E Ratio (Forward 12-Month)
3 Transportation-Shipping Stocks to Buy Now
FLEX LNG: Impressive demand for LNG bodes well for FLNG. Efforts to reward its shareholders through dividends attest the company’s financial well-being.
FLEX LNG currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2026 earnings implies an increase of 8% on a year-over-year basis.
You can see the complete list of today’s Zacks #1 Rank stocks here
Price and Consensus: FLNG
Euroseas is an owner and operator of container carrier vessels and a provider of seaborne transportation for containerized cargoes. The company has been benefiting from profitable contracts and maintains a time charter equivalent rate of more than $30,000 per day.
The stock has gained 5% over the past year. The company currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2025 earnings has increased 2.1% over the past 60 days.
Price and Consensus: ESEA
KNOT Offshore is engaged in owning, acquiring, and operating shuttle tankers designed to transport crude oil and condensates from offshore oil field installations to onshore terminals and refineries.
The stock currently carries a Zacks Rank #2. KNOP surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark in the other quarter). The average beat was 314.3%.
Price and Consensus: KNOP