Transportation

With Global Shipping Skyrocketing, 5 Stocks Under $10 to Buy Now

Lee Jackson

Published: January 12, 2019 10:10 am

Last Updated: January 11, 2020 12:38 pm

President Trump, despite his many warts, has delivered on many of his campaign promises, and one of the biggest was to make the United States energy independent. In fact, in December the United States exported more crude oil and fuel than it imported for the first time on record. Not only is that huge for the companies that produce oil, natural gas and liquid natural gas, but it is also huge for the maritime shipping companies that move that product all around the world.

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In a new research report, Jefferies notes that, despite the big jump in maritime shipping globally, falling crude prices in the fourth quarter put a dent in many of top stocks as worried investors sold shares. Despite the selling, the news in the fourth quarter was positive, and the analysts said this:

The good news about a disconnect between improving fundamentals (higher spot rates/charter rates and improved supply/demand) and falling share prices is that is has allowed many companies to repurchase shares or authorise new programmes. Jefferies analyst Randy Giveans believes that global shipping markets have improved meaningfully. He believes that EVERY shipping sector under coverage is poised for year-over -year spot strengthening in 2019 and 2020 although he would focus on LNG carrier, crude tanker, and refined products tanker markets as increasing ton-mile demand should easily outpace manageable supply growth.

Jefferies has a large basket of stocks in the sector rated Buy, but here we focused in on those trading below the $10 level. Many investors, especially more aggressive traders, look at lower priced stocks as a way to not only make some good money but to get a higher share count. That can really help the decision-making process, especially when you are on to a winner, as you can always sell half and keep half.

Here are five top shipping picks from Jefferies to buy now that trade under $10 a share.

Ardmore Shipping

This smaller company is off the radar but offers massive upside potential. Ardmore Shipping Corp. (NYSE: ASC) engages in the ocean transportation of petroleum and chemical products in international trade through the ownership and operation of a fleet of tankers.

Ardmore’s core strategy is to continue to develop a modern, high-quality fleet of product and chemical tankers, build key long-term commercial relationships and maintain its cost advantage in assets, operations and overhead, while creating synergies and economies of scale as the company grows.

Ardmore provides its services to customers through voyage charters, commercial pools and time charters, and it enjoys close working relationships with key commercial and technical management partners.

The Jefferies price target for the shares is $11, and the Wall Street consensus target is $9.78. The shares ended trading on Friday at $5.18.

DHT

This is another smaller industry player the Jefferies team likes. DHT Holdings Inc. (NYSE: DHT) is an independent crude oil tanker company that through its subsidiaries, owns and operates crude oil tankers primarily in Oslo, Norway, and Singapore. As of Feb. 6, 2018, it had a fleet of 27 very large crude carriers and two Aframaxes with deadweight tons near 8.6 million.

Last week the company announced it had purchased 1,228,440 of its own shares in the period from December 14, 2018, to December 27, 2018, for an aggregate consideration of some $5.02 million at an average price of $4.07. In March 2018, the board of directors approved the repurchase of up to $50 million of DHT securities through open market purchases, negotiated transactions or other means, in accordance with applicable securities laws. The repurchase program has been authorized through March 2019 and may be suspended or discontinued at any time.

Jefferies has a $6 price target, and the consensus target is $6.99. The stock closed trading at $4.28 on Friday.

Dynagas LNG Partners

This company has continued to pay an outstanding distribution to unitholders. Dynagas LNG Partners L.P. (NYSE: DLNG) operates in the seaborne transportation industry worldwide. The company owns and operates liquefied natural gas (LNG) carriers. As of March 9, 2018, its fleet consisted of six LNG carriers with an aggregate carrying capacity of approximately 914,000 cubic meters. Dynagas GP serves as its general partner.

Dynagas has continued to increase the distribution, and with U.S. LNG exports expected to jump dramatically, this could be a solid play for aggressive income investors.

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Dynagas investors are paid a stunning 24.87% distribution. The massive $12 Jefferies price target compares with the $7.75 consensus target. Shares were trading on Friday’s close at $4.02 apiece.

Scorpio Bulkers

This is one of the more widely covered names on Wall Street. Scorpio Bulkers Inc. (NYSE: SALT) engages in the provision of ocean transportation of dry bulk cargoes worldwide through the ownership and operation of dry bulk carrier vessels. It operates through the following segments: Ultramax vessels, Kamsarmax vessels and Capesize vessels.

Scorpio Bulkers has an operating fleet of 57 vessels, consisting of 56 wholly owned or financed leased dry bulk vessels (including 19 Kamsarmax vessels and 37 Ultramax vessels), and one time chartered-in Ultramax vessel. The company’s owned and finance leased fleet has a total carrying capacity of approximately 3.9 million deadweight tonnage, and all the company’s owned vessels have carrying capacities of greater than 60,000 deadweight tonnage.

Jefferies has a strong $10 price objective. The posted consensus target price is $9.33, and the stock was last seen trading at $5.82 a share.

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Seaspan

This stock is also widely followed on Wall Street and offers perhaps a safer aggressive play. Seaspan Corp. (NYSE: SSW) operates as an independent charter owner and manager of containerships in Hong Kong. Seaspan has an operating fleet of 112 vessels with a capacity of 905,900 twenty-foot equivalent units (TEU), ranging from 2,500 TEUs to 14,000 TEUs in scale, and vessels leased to most of the world’s largest container liner companies, including Yang Ming, Maersk, MSC, Hapag-Lloyd, China Coscon and K-Line.

When the company hosted an investor day in November of 2018, management reiterated focus on shareholders and de-levering, with a goal of repaying $1 billion in debt. The chairman of the firm listed three possible areas for its merger and acquisitions pipeline: shipping/energy related, containerships and co-investing with liners.

The Jefferies price target of $10 is well above the consensus target of $8.61, which also compares to the most recent share price of $9.31.

These five top shipping stocks trading under the $10 level all have big upside to the analyst’s price targets. Again, while they are not suitable for conservative accounts, aggressive investors can get some solid share leverage buying 5,000, 10,000 or more and can make money on a much smaller share price move.