It seems odd to be analyzing the best shipping stocks on a day when the second read of second quarter GDP should convince nearly any lingering skeptic that the U.S. economy is in a recession. Furthermore, that recession is likely to last well into 2023 and come with a much harder landing than the Federal Reserve would like.
In addition, with shipping rates down from record levels, it’s not surprising that many shipping stocks have been whacked hard in 2022. But that may be an opportunity. According to the International Chamber of Shipping, 90% of world trade flows through the maritime shipping industry. That industry is headed by publicly traded companies.
This is an extremely volatile sector, but it’s essential to the world’s supply chain. Still, when looking for the best shipping stocks, investors should consider the companies with strong balance sheets and a proven track record or competitive advantages in the sector. Here are seven of the best shipping stocks for investors to consider. For the purposes of this article, I’m defining shipping stocks as the tankers and vessels that move goods on the water.
|AMKBY||AP Moeller Maersk||$9.10|
|ZIM||ZIM Integrated Shipping||$23.54|
|GSL||Global Ship Lease||$15.81|
|GNK||Genco Shipping & Trading||$12.55|
|SBLK||Star Bulk Carriers||$17.47|
AP Moeller Maersk (AMKBY)
A rough 2022 got worse for AP Moeller Maersk (OTCMKTS:AMKBY) when it was downgraded from Buy to Sell by Citigroup (NYSE:C) in August. Then it got a similar downgrade from Danske in late September. That got investors’ attention and the stock is down 30% in September.
So why is it on this list of best shipping stocks? It’s an unquestioned leader in the sector with over 700 ships and a market share of 16.7% as of April 2022. The company counts Walmart (NYSE:WMT), Nike (NYSE:NKE), and Unilever (NYSE:UL) among its clients. In its most recent earnings report Maersk reported a year-over-year (YOY) revenue gain of 52% and a 138% YOY increase in earnings per share.
The stock is under pressure as the company has said it will be slowing down its ships to reduce fuel costs. Still, in an interview with Reuters, chief executive officer Soren Skou was projecting a “modest” increase in demand for the holiday season and overall shipping rates, while coming down, still remain above pandemic levels.
ZIM Integrated Shipping (ZIM)
Next on my list of best shipping stocks is ZIM Integrated Shipping (NYSE:ZIM). The story with ZIM will be consistent with many of these stocks. Shipping rates are being forecast lower. And that was enough to get Citigroup to lower ZIM’s rating from Buy to Neutral. Several other analysts lowered their price targets.
The result is that ZIM stock is down 42% in September. But this may be a case of the market being gripped in FUD (fear, uncertainty, and doubt). The company continues to deliver strong YOY growth in earnings and revenue. Revenue and earnings are expected to decline in the next five years. However, the revenue is still expected to be above pre-pandemic levels.
That’s the real takeaway with ZIM. This is a company that scores well in both valuation and profitability. If the recession is worse than feared, it may be time to reassess ZIM and other shipping stocks. Otherwise, it may be worth a speculative buy.
Global Ship Lease (GSL)
Looking at the stock chart for Global Ship Lease (NYSE:GSL) is enough to make you sea sick. It’s had plenty of volatility, and right now it’s down about 32% in 2022. The U.K.-based company owns and charters various-sized containerships under fixed-rate two- to five-year charters to companies such as Maersk. This allows the company to get many of the benefits of the shipping sector while managing the downside risk. The company recently announced a deal for six ships which will add $39 million of EBITDA from 2024-2029.
So far, the bearish sentiment in the broader market is weighing on the stock more than the positive news. However, that can make it an attractive time for investors to get in on a stock that has a P/E ratio of just over 2x earnings and pays a dividend with a yield of over 9.5%.
Genco Shipping & Trading (GNK)
Genco Shipping & Trading (NYSE:GNK) is the U.S. counterpart to Global Ship Lease. The company transports many of the commodities such as nickel and iron ore that will be in high demand in the emerging growth sectors of the world economy.
The company checks off many of the boxes that value investors look for. It’s growing its earnings and revenue on a year-over-year basis. It raised its dividend based on the company’s potential earnings in 2022.
So far, GNK stock is being dragged down on recession fears. However, like many of the other stocks on this list those concerns seem to be priced into the stock. In the meantime, opportunistic investors should consider adding the stock.
Star Bulk Carriers (SBLK)
Star Bulk Carriers (NASDAQ:SBLK) has a fleet of 128 carriers that transports dry goods around the world. Like many shippers, Star Bulk’s stock saw unprecedented demand drive up the SBLK stock price for much of 2020 and 2021.
However, 2022 has been a different story. SBLK is down 24% for the year. Still, the company’s consistent YOY growth in revenue and earnings suggests that this may be some profit taking. The consensus price target of analysts suggests the stock could have an upside of over 80%.
And the company is currently paying a dividend that has a 34% yield and a payout of over $6.50 per share. As Louis Navallier put it, I wouldn’t expect that kind of dividend return to continue, but in the current risk-off market, SBLK stock, the combination of likely capital appreciation combined with a dividend makes SBLK an attractive choice in this sector.
GasLog Partners (GLOP)
GasLog Partners (NYSE:GLOP) makes the list of the best shipping stocks because it services a niche that will be in high demand this upcoming winter. The war in Ukraine is creating an energy crisis in Europe. In response, many U.S. oil and gas companies are working to supply liquefied natural gas to Europe.
That’s where GasLog Partners comes in. The Greece-based company owns, operates, and manages, a fleet of approximately 25 LNG carriers and provides support for many international energy companies including Shell (NYSE:SHEL).
According to some industry estimates, demand for LNG is expected to rise at a compound annual growth rate (CAGR) of 6% through 2025. That would position GasLog well since their business model typically has them charter vessels under long-term contracts.
GLOP stock is up 24% in 2022, but it’s down 26% from its 52-week high.
Teekay Corp. (TK)
Similar to GasLog Partners, Teekay Corp. (NYSE:TK) ships LNG along with other petroleum products. Russia’s invasion of Ukraine has created a catalyst for Teekay due to its stake in Teekay Tankers an owner and operator of mid-size crude tankers. Tanker markets are now being reshaped to include longer routes.
This favors Teekay Tankers which is not generating a strong free cash flow yield that is currently above 20% at the company’s current charter rate levels. The company says it expects that the world’s shift to renewable energy will help it expand into new markets.
All of this isn’t doing much for TK stock even though it is up 11% in 2022. The stock is up sharply from its July lows which also reflects the ramping up of supplies for oil and LNG. Still the stock is trading at a significant discount to its net asset value (NAV) which suggests that the market may be overreacting about recession concerns.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.