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The Zacks Transportation - Shipping industry 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, ZIM Integrated Shipping Services and Ardmore Shipping Corp.
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.
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’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.
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.
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.
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.
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.
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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. 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 Dorian, ZIM Integrated Shipping and Ardmore Shipping
For Immediate Release
Chicago, IL – January 19, 2024 – Today, Zacks Equity Research discusses Dorian LPG (LPG - Free Report) , ZIM Integrated Shipping Services (ZIM - Free Report) and Ardmore Shipping Corp. (ASC - Free Report) .
Industry: Shipping
Link: https://www.zacks.com/commentary/2212218/3-shipping-stocks-to-watch-from-a-challenging-industry
The Zacks Transportation - Shipping industry 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, ZIM Integrated Shipping Services and Ardmore Shipping Corp.
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.
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’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.
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.
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.
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.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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.
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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. 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.