When the you-know-what hits the fan, there is a certain class of investor that sees that as an opportunity. We deep-value contrarian investors see blowups as buying chances and are more likely to scour the Wall Street Journal's 52-week lows rather than the highs.
But the deep-value part is important. When a Novavax (NVAX) moment happens, do I jump in and try to find a bottom? No, because I am only vaguely familiar with Novavax's product suite and regardless of its efficacy I can say without looking at a 10Q that Novavax has little to no asset value. When an emerging biopharmaceutical company goes into the tank, it's not as if competitors are lining up outside their plants for a fire sale. There's not much to sell.
So, I look for companies that do have tangible assets and that the market is undervaluing. Reading the Journal is helpful in that pursuit, as well. One of the biggest stories of the past month has been the bankruptcy of Korean shipping line Hanjin. The Journal has been full of stories of container ships being arrested, ports refusing to offload cargoes (although there has been progress on that front) and the possibility of a Blue Christmas as boxes full of electronic goodies from Asia, Inc. are stuck at sea.
The container shipping industry has been mired in a downturn that really seems like a depression. Unlike the dry-bulk shipping industry -- home of my firm's largest holding and my Real Money Best Idea the preferreds of Navios Maritime (NM) -- a chart of container rates shows a long-lived funk, not a late-January/early-February crash. No, container rates are just stuck, with a pronounced downturn from June 2015 to November 2015 and a re-basing to a very low level by historical standard ever since.
That's the type of end-market action that kills companies, and while the Korean government -- via the Korea Development Bank -- saved Hyundai Merchant Marine this summer, there was no way they could restructure Hanjin quickly enough.
But that's exactly what the container shipping industry needed to break out of its funk. Rationalization followed by consolidation.
I went to the excellent site www.alphaliner.com to look up Hanjin's place in the shipping market. Hanjin is the eighth-largest shipping line in the world with a market share of a whopping 2.9%. The container industry is incredibly fragmented, a phenomenon that is exacerbated by the fact that the liner companies charter in ships in addition to the ones they own. Hanjin, for example, owns 37 container ships, but charters in 55, and the company was being killed (literally) by the fact that long-term charters are much more expensive than current rates.
Hanjin's collapse heralded the beginning of the much-needed rationalization of the container shipping market. As that process unfolds, I believe the companies that own ships will benefit more than those that are fully-fledged liner companies.
One pure-play box ship owner that I have been looking at this week is Costamare (CMRE) .
Costamare benefits from the stable, long-term ownership of the Konstantakopolous family, who together control 65% of the company's common shares. Costamare owns 72 ships and a grand total of zero are chartered to Hyundai Merchant and Hanjin, so it's safe to say these guys know what they are doing.
Costamare's dividend of 29 cents per quarter is particularly attractive and the family has pledged, beginning with the August payout, to reinvest their dividends in CMRE shares. Cosatamare earned 42 cents per share in the second quarter and also, like all shipping companies, has high depreciation charges, so I believe that payout is safe. But if you're worried about the malaise in the container industry continuing, you could always opt for one of Costamare's three series of preferred shares, which are each yielding 10%, slightly lower than the common's current yield of 13%.
