I make it a habit each evening to check in on Real Money and see what my fellow contributors have to say. We have some really smart folks with a wide range of opinions and approaches and their input can be quite valuable. Commentary over the last couple of days has been heavily focused on oil as prices have continued to fall and the energy-related equites and bonds have tumbled substantially. A lot of people, including me, came into this month owning a good deal of energy stocks and we are concerned. However, as much as we are concerned, it is important to realize that the oil price slide is also creating opportunities.
One of those opportunities that not many people are talking about is the upside for oil and petroleum products shipping companies. Basic economics tells us that lower prices will increase demand over time. Product is going to have to be shipped from point A to point B and that is good news for the shippers.
One of my favorite names in the space is Nordic American Tankers (NAT). The company has 22 double-hulled Suezmax tankers and two more newbuilds that will be delivered in 2016 and 2017. From its IPO back in 1995, the company has grown from three tankers to the current 22 in operation. Nordic American takes great pride in the fact that it has paid a dividend for 60 consecutive quarters. At the current price, the yield is a very nice 6.30%. The shares are cheap too, trading at just 84% of book value.
Earlier this week, Nordic American issued a press release that addressed its view of oil and the current state of the shipping market. Management told investors rather bluntly that "Low oil price is good for crude tanker companies. Lower oil price leads to increased oil demand and economic growth, stimulating the need for transportation. Some observers wrongly seem to indicate that the crude tanker business could suffer from low/lower oil prices. The opposite is the case. The current rates in the spot tanker market have continued on a positive path, boding well for the 4th quarter of 2014, a development we hope will continue in 2015."
In addition to its shipping fleet, Nordic American owns 18% of Nordic American Offshore (NAO), which owns 20 platform supply vessels operating primarily in the North Sea. North American Offshore recently pointed out that 80% of its fleet services existing platforms that will not suspend ongoing production and just 20% of its fleet will feel any impact from a cutback in oil and gas exploration. Although the market is clearly expecting a dividend cut, Nordic American Offshore said that even at current oil prices, it expects to be able to pay a dividend in 2015. It has no debt and the stock is trading at just 70% of book value. The company's largest shareholder thinks the stock is cheap and Nordic American Tankers bought 488,216 shares at a price range of $10.29 to $12.89.
I like the tanker companies. I have owned shares of Tsakos Energy Navigation (TNP) for some time now and done pretty well with the stock. If I didn't already own the stock I would be a buyer at these levels. Tsakos Energy has a fleet of 58 vessels, including product tankers, crude tankers, and liquefied natural gas carriers. Business is pretty good. For the first nine months of the year it has reported net income of $20.0 million, or $0.18 per share, compared to a $1.9 million loss for the same period in 2013. While the company has a little more debt than I usually like to see, there is plenty of cash on its balance sheet and cash flows are sufficient to pay the interest and maintain the current dividend yield of about 3%. The stock is very attractive, as the shares are fetching just 50% of book value.
Ardmore Shipping (ASC) is another tanker company worth considering at current prices. The company has 14 vessels in operation and 10 more that should be delivered in 2015. The stock is trading at just 80% of book value and currently yields about 4%. Management thinks it is underpriced, as the company recently announced a $20 million buyback plan and CEO Anthony Gurnee told investors in the press release: "We are very positive about Ardmore's business prospects, and the current share price represents a considerable discount and a fundamental disconnect to the implicit value of our modern, high-quality and fuel efficient fleet."
Tanker stocks are cheap at current levels. Business conditions are decent and will improve if oil prices stay low through 2015. Trading below book with solid dividends, these names are worth the attention of long-term asset-based value investors.