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The gradual resumption of economic activities and an uptick in world trade proved to be a boon for stocks in the Zacks Transportation - Shipping industry. This is because they are responsible for transporting bulk of the goods involved in global trade. Soaring demand for goods and commodities is supporting growth for the industry participants.
The prevalent scenario makes stocks like Golar LNG, Global Ship Lease, Eagle Bulk Shipping and EuroDry attractive investment options.
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 major energy and utility companies. Most participants focus globally on the seaborne transportation of crude oil and other oil products.
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 amid the coronavirus-scarred scenario implies that shippers are relying more on third-party logistics providers.
The well-being of the participants in this industry is directly proportional to the health of the economy. Strength in manufactured goods and improving global economic conditions bode well for the industry.
What's Shaping the Future of the Transportation - Shipping Industry?
Upbeat Demand Scenario Bodes Well: The northward movement in trading volumes should continue throughout the current year. Evidently, the containership market is being aided by increased manufacturing activities in Asia in addition to inventory restocking and greater demand for goods rather than services in Europe and the United States. LNG tankers are also flourishing.
With demand for goods and commodities likely to remain strong, with capacity being limited, rates should remain high. This bodes well for the industry participants. Most shipping stocks are being well-served by the bullishness surrounding the dry bulk market. Increased fleet utilization, driven by an uptick in world trade, is supporting growth of dry bulk shipping stocks.
Dividend Hikes Highlight Financial Bliss: With the reopening of economic activities, many companies are reactivating their shareholder-friendly measures like dividend payouts and buybacks, underlining their financial strength and confidence in the business. Among the shipping players, Global Ship Lease announced its decision to increase dividends 50% late last year. The upped dividend highlights Global Ship Lease's commitment to create shareholder value.
Following the 50% hike, the dividend amount jumped more than thrice the figure declared by GSL in January 2021. As investors prefer an income-generating stock, dividend-paying stocks are very much sought-after. Moreover, due to the current geopolitical woes, investing in stocks that deliver a steady flow of income and are unfazed by any market gyrations appears to be a prudent move.
Bottom-Line Growth May Suffer Due to Oil Price Increase: The current upsurge in oil price does not augur well for any transportation stock as far as its bottom-line growth is concerned. This is because fuel expenses represent a key input cost for a transportation player and shipping stocks are no exceptions.
Notably, oil prices escalated 33% in first-quarter 2022, induced by the Russia-Ukraine war. Per the U.S. Energy Information Administration (EIA), in March, the Brent crude oil spot price averaged $117 per barrel, reflecting a $20-increase from the February tally. The EIA expects the Brent price to average $108 per barrel in the June quarter and $102 in the second half of 2022. The forecast by EIA is engulfed by a high degree of uncertainty considering the present volatile scenario.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Transportation - Shipping industry is a 43-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #39, which places it in the top 15% of 250 plus Zacks industries.
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Evidently, the industry's earnings estimate for 2022 surged 125% 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 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 26.9% over this period against the S&P 500's depreciation of 1.1%. The broader sector has declined 12%.
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 4.88X compared with the S&P 500's 13.66X. It is also below the sector's trailing-12-month EV/EBITDA of 14.58X.
Over the past five years, the industry has traded as high as 15.09X, as low as 4.21X and at the median of 9.34X.
4 Transportation - Shipping Stocks Worth Adding to Your Portfolio
Golar LNG: Upbeat demand for liquefied natural gas (LNG) bodes well for GLNG. The surging inflation shot up oil and natural gas prices. Moreover, amid the Russia-Ukraine war, Europe is likely to seek gas supplies outside Russia. This is expected to drive demand for LNG vessels.
Golar LNG currently sports a Zacks Rank #1 (Strong Buy). GLNG shares have surged 97.8% in a year's time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 21.13% north.
Global Ship Lease is being aided by the bullish sentiment surrounding the containership market. GSL's strong balance sheet is an added positive. GSL's expected earnings growth rate for 2022 is 60.29% from the 2021 actuals.
The Zacks Consensus Estimate for current-year earnings has moved up 7.45% over the past 60 days. GSL currently flaunts a Zacks Rank of 1. Shares of GSL have gained 62.8% in a year's time.
Eagle Bulk Shipping: Improved market sentiments surrounding the Drybulk market are aiding the stock. EGLE owns one of the largest fleets of Supramax/Ultramax ships, globally. Efforts to upgrade its fleet also bode well.
Eagle Bulk currently carries a Zacks Rank #2 (Buy). EGLE's shares have surged 48.2% in a year's time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 27.23% north.
Bullishness surrounding the dry bulk market is a huge boon for EuroDry. Ramped-up fleet utilization with the gradual resumption of economic activities and an uptick in world trade boosted the stock.
EuroDry currently carries a Zacks Rank of 2. EDRY shares have skyrocketed 206.2% in a year's time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 3.15% north.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Golar LNG, Global Ship Lease, Eagle Bulk Shipping and EuroDry
For Immediate Release
Chicago, IL – May 2, 2022 – Today, Zacks Equity Research discusses Golar LNG (GLNG - Free Report) , Global Ship Lease (GSL - Free Report) , Eagle Bulk Shipping and EuroDry (EDRY - Free Report) .
Industry: Shipping
Link: https://www.zacks.com/commentary/1911314/bet-on-4-prospective-shipping-stocks-in-a-promising-industry
The gradual resumption of economic activities and an uptick in world trade proved to be a boon for stocks in the Zacks Transportation - Shipping industry. This is because they are responsible for transporting bulk of the goods involved in global trade. Soaring demand for goods and commodities is supporting growth for the industry participants.
The prevalent scenario makes stocks like Golar LNG, Global Ship Lease, Eagle Bulk Shipping and EuroDry attractive investment options.
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 major energy and utility companies. Most participants focus globally on the seaborne transportation of crude oil and other oil products.
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 amid the coronavirus-scarred scenario implies that shippers are relying more on third-party logistics providers.
The well-being of the participants in this industry is directly proportional to the health of the economy. Strength in manufactured goods and improving global economic conditions bode well for the industry.
What's Shaping the Future of the Transportation - Shipping Industry?
Upbeat Demand Scenario Bodes Well: The northward movement in trading volumes should continue throughout the current year. Evidently, the containership market is being aided by increased manufacturing activities in Asia in addition to inventory restocking and greater demand for goods rather than services in Europe and the United States. LNG tankers are also flourishing.
With demand for goods and commodities likely to remain strong, with capacity being limited, rates should remain high. This bodes well for the industry participants. Most shipping stocks are being well-served by the bullishness surrounding the dry bulk market. Increased fleet utilization, driven by an uptick in world trade, is supporting growth of dry bulk shipping stocks.
Dividend Hikes Highlight Financial Bliss: With the reopening of economic activities, many companies are reactivating their shareholder-friendly measures like dividend payouts and buybacks, underlining their financial strength and confidence in the business. Among the shipping players, Global Ship Lease announced its decision to increase dividends 50% late last year. The upped dividend highlights Global Ship Lease's commitment to create shareholder value.
Following the 50% hike, the dividend amount jumped more than thrice the figure declared by GSL in January 2021. As investors prefer an income-generating stock, dividend-paying stocks are very much sought-after. Moreover, due to the current geopolitical woes, investing in stocks that deliver a steady flow of income and are unfazed by any market gyrations appears to be a prudent move.
Bottom-Line Growth May Suffer Due to Oil Price Increase: The current upsurge in oil price does not augur well for any transportation stock as far as its bottom-line growth is concerned. This is because fuel expenses represent a key input cost for a transportation player and shipping stocks are no exceptions.
Notably, oil prices escalated 33% in first-quarter 2022, induced by the Russia-Ukraine war. Per the U.S. Energy Information Administration (EIA), in March, the Brent crude oil spot price averaged $117 per barrel, reflecting a $20-increase from the February tally. The EIA expects the Brent price to average $108 per barrel in the June quarter and $102 in the second half of 2022. The forecast by EIA is engulfed by a high degree of uncertainty considering the present volatile scenario.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Transportation - Shipping industry is a 43-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #39, which places it in the top 15% of 250 plus Zacks industries.
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Evidently, the industry's earnings estimate for 2022 surged 125% 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 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 26.9% over this period against the S&P 500's depreciation of 1.1%. The broader sector has declined 12%.
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 4.88X compared with the S&P 500's 13.66X. It is also below the sector's trailing-12-month EV/EBITDA of 14.58X.
Over the past five years, the industry has traded as high as 15.09X, as low as 4.21X and at the median of 9.34X.
4 Transportation - Shipping Stocks Worth Adding to Your Portfolio
Golar LNG: Upbeat demand for liquefied natural gas (LNG) bodes well for GLNG. The surging inflation shot up oil and natural gas prices. Moreover, amid the Russia-Ukraine war, Europe is likely to seek gas supplies outside Russia. This is expected to drive demand for LNG vessels.
Golar LNG currently sports a Zacks Rank #1 (Strong Buy). GLNG shares have surged 97.8% in a year's time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 21.13% north.
You can see the complete list of today's Zacks #1 Rank stocks here.
Global Ship Lease is being aided by the bullish sentiment surrounding the containership market. GSL's strong balance sheet is an added positive. GSL's expected earnings growth rate for 2022 is 60.29% from the 2021 actuals.
The Zacks Consensus Estimate for current-year earnings has moved up 7.45% over the past 60 days. GSL currently flaunts a Zacks Rank of 1. Shares of GSL have gained 62.8% in a year's time.
Eagle Bulk Shipping: Improved market sentiments surrounding the Drybulk market are aiding the stock. EGLE owns one of the largest fleets of Supramax/Ultramax ships, globally. Efforts to upgrade its fleet also bode well.
Eagle Bulk currently carries a Zacks Rank #2 (Buy). EGLE's shares have surged 48.2% in a year's time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 27.23% north.
Bullishness surrounding the dry bulk market is a huge boon for EuroDry. Ramped-up fleet utilization with the gradual resumption of economic activities and an uptick in world trade boosted the stock.
EuroDry currently carries a Zacks Rank of 2. EDRY shares have skyrocketed 206.2% in a year's time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 3.15% north.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.