• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Transportation

Why I Absolutely Love One of the Most Despised Sectors Around

Don't read any further if you are squeamish... unless you want potentially attractive returns.
By JIM COLLINS
Feb 01, 2018 | 03:36 PM EST
Stocks quotes in this article: NM-G, RRC, SWN, AMZN, FB

It's almost a point of pride among contrarians to note that the group in which they are invested is "the most hated" in the stock market. The genesis of my idea to buy my top-performing Real Money Best Idea -- the Series G Preferreds of Navios Maritime (NM-G) -- was a turn in sentiment on dry-bulk shipping stocks in early 2016 the likes I had not seen since the summer of 2008.

To state that dry-bulk stocks were hated by the market in January 2016 is an understatement, and in the case of Navios, the bond market was pricing its fixed-income securities (like NM-G) as if bankruptcy was an imminent possibility. Well, the markets were wrong and that was a huge win for my firm, Portfolio Guru, LLC, and my clients.

Fast forward two years and as we are entering the fifth quarter of the Trump Jump I have been looking for hated groups to try and find another NM-G for my clients. Exploration and production companies (E&Ps) are certainly in that bucket, and I was doing some work this week on names like Range Resources (RRC) and Southwestern Energy (SWN) that convinced me that natural gas E&Ps are actually more hated than oil E&Ps.

Sentiment on the price of natural gas can change in minutes, but the natgas E&P group is full of stocks hitting 52-week lows. While I certainly think that natgas E&P stocks are good long-term buys here, I am not seeing the pure, unadulterated hatred that I saw with Navios in January 2016.

So, to find an even more unloved group than natgas E&Ps, I went back to the well once again. Yes, there are shipping stocks that have been completely bombed out in the past few weeks, although this time it is a different subsector than dry bulk.

Oil tanker stocks have just been absolutely creamed in the past two weeks, and if you were busy watching Amazon (AMZN) and Facebook (FB) instead, you missed the carnage. Good thing, actually. The table below shows the two-week performance data for a select group of tanker shipping companies and don't read any further if you are squeamish.

What's causing the share price declines among the tanker shipping stocks? Well, these are commodity shippers, and shipping rates have dropped sharply.

According to Platts, a journey from the Persian Gulf for a Very Large Crude Carrier (VLCC) that was measured in November at an index value of 70 is now being priced at an index value below 40. The real pressure on the stocks has come, though, as those indicative VLCC rates jumped in January from an index value of 40 to 50 only to begin a decline mid-month back to the 40 level.

That's what has spooked the stock markets and killed the tanker shipping stocks. The normal seasonal pop in VLCC rates caused by increased winter fuel demand in the Northern Hemisphere just didn't happen this year, and any hope for a January catch-up was quashed by mid-month.

Demand statistics themselves are strong, and U.S. oil inventories are lower than they have been in years, but that doesn't necessarily translate to greater demand for a ship full of crude that is the length of five football fields.

The main culprit behind the recent fall in VLCC rates has been a surplus of ships waiting to load cargoes in the Persian Gulf. If you didn't believe that OPEC's cartel-wide production cuts were holding, the surfeit of VLCCs in the Gulf are evidence that they are. Chinese oil imports rose 10.1% in 2017, and while a dip in December added fuel to the dumpster fire that enveloped the tanker shipping industry, I believe we will see a similar increase in Chinese oil imports in 2018.

So, the possibility for geometric returns based on reversion to mean for VLCC rates is there. Next time I'll go through the individual names and identify which ones are most deserving of a near-term stock price bounce.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Collins had no positions in any securities mentioned.

TAGS: Investing | U.S. Equity | Transportation | Emerging Markets | Markets | China | How-to | Preferred Stocks | Stocks

More from Transportation

At the Copa, Is It Takeoff or Landing?

Bruce Kamich
May 13, 2022 10:50 AM EDT

I found several 'interesting' things on this airline's charts.

Royal Caribbean: Don't Go Down With the Ship

Paul Price
May 11, 2022 7:00 AM EDT

All of the major cruise lines are suffering from their own form of long Covid, and they largely lacked a government lifesaver. Here's why even the best of the businesses looks like a sinking stock ... for now.

Transportation Is Still Iffy With XPO Logistics

Bruce Kamich
May 10, 2022 10:31 AM EDT

Here's what the overall picture shows.

Lyft Tumbles to Our Price Target: Here's Its Likely Next Destination

Bruce Kamich
May 4, 2022 2:29 PM EDT

The share reached our target Wednesday with a dramatic downside price gap.

Hertz: Is the Check Engine Light On?

Bruce Kamich
Apr 29, 2022 9:05 AM EDT

Let's check our dashboard of charts and indicators on HTZ.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • 12:20 PM EDT PAUL PRICE

    A Blast From the Past Regarding Bitcoin

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login