There is absolute clarity on the point that global economic growth is gaining traction. And that means good things for the future of shipping stocks.
The international Monetary Fund expects global economic growth at 6% for 2021 and 4.4% for 2022. For the current year, emerging economies are likely to grow at 6.7%. Performance of shipping stocks has a high positive correlation with GDP growth. Thus, it’s a good time to remain invested in quality shipping stocks.
Coming back to growth indicators, the global manufacturing PMI was 56 for May 2021. For the same period, the services sector PMI was 59.4. The composite PMI of 58.4 has now exceeded the PMI levels prior to the Covid-19 pandemic. Clearly, the economy is on a strong footing even as concerns related to the delta variant persists.
So, with all of that in mind, let’s talk about four shipping stocks that are likely to benefit from robust economic activity that has translated into healthy growth in global seaborne trade.
- Costamare (NYSE:CMRE)
- Diana Shipping (NYSE:DSX)
- Danaos Corporation (NYSE:DAC)
- Seanergy Maritime (NASDAQ:SHIP)
Now, let’s dive in and take a closer look at each one.
Shipping Stocks To Buy: Costamare (CMRE)
CMRE stock is my top-pick among shipping stocks. At a forward price-earnings ratio (P/E) of 5.0, the stock seems to be a possibly doubler from current levels. Additionally, the stock also has an attractive dividend yield of 4.48% and dividends are sustainable.
From a cash flow visibility perspective, Costamare reported a contracted backlog of $3 billion as of June 2021. The backlog is with solid counter-parties and is likely to ensure that dividends sustain.
Furthermore, with a strong backlog, debt servicing is unlikely to be a concern. As of March 2021, the company reported and EBITDA-interest-coverage ratio of 5.77. With no debt maturity until 2025, there is no immediate refinancing pressure.
Another important point to note is that charter rates increased by 54% in 2021. As the global economy crawls back to normalcy, strong charter rates will support EBITDA margin.
Costamare has also been active in terms of ensuring top-line growth. Recently, the company announced the acquisition of 16 dry bulk vessels of between 33,000 and 85,000 DWT. The vessels are expected to be delivered through January 2022. This will support growth in cash flows and possible increase in dividends.
Overall, CMRE stock looks attractive from a dividend perspective as well as for potential upside from current levels.
Diana Shipping (DSX)
In the last 12 months, DSX stock had a strong rally from $1.40 to highs of $5.60. The stock has subsequently corrected to current levels of $4.27. And at a forward P/E of 16.7, DSX stock seems good for accumulation.
As an overview, Diana Shipping operated 37 dry bulk carriers with an average age of 10.2 years. As of Q1 2021, the company’s dry bulk fleet had a healthy utilization of 98.6%. Moreover, the company has a secure revenue visibility of $135.2 million for 2021 with an average contract duration of 1.01 years.
From a macro perspective, the company believes that charting is likely to remain strong in the next few years. A key factor is global economic rebound. As growth in emerging economies accelerates and steel demand picks-up, the company is positioned to benefit. As a matter of fact, time charter earnings for dry bulk have already surged.
It’s also worth noting that the supply of dry bulk fleet is expected to increase by 3.1% in 2021 and 1.2% in 2022. With limited supply side growth, time charter rates are likely to remain firm.
In terms of balance sheet strength, the company reported net-debt to market value of fleet at 38%. This provides ample financial headroom for leveraging.
Overall, Diana Shipping seems well positioned to benefit from positive industry tailwinds. It’s likely that the stock will continue to trend higher even after a strong rally in the last few quarters.
Shipping Stocks To Buy: Danaos Corporation (DAC)
From significant undervaluation, DAC stock has skyrocketed by just under 1800% in the last 12 months. After peaking-out at $79.50, the stock currently trades at a little more than $67.
I believe that accumulation can be considered on correction with DAC stock still trading at an attractive forward P/E of 5. Additionally, the company’s net asset value per share is $90.90 and this is indicative of the upside potential from current levels.
As an overview, Danaos is an owner and operator of containerships. In terms of market share, the company is just behind Seaspan and Costamare.
As of May 2021, the company had a charter backlog of $1.2 billion through 2028 with an average charter duration of 2.9 years. This provides clear EBITDA and cash flow visibility.
From a balance sheet perspective, the company reported leverage of 4.0 as of Q1 2021. First and foremost, the company’s leverage has declined from 7.3 in 2017. Furthermore, the order backlog ensures smooth debt servicing.
Recently, Danaos Corporation announced the acquisition of six 5,466 TEU eco-design container vessels. If market conditions remain favorable, further container vessel acquisition is likely. This will ensure growth in order book and cash flows.
Seanergy Maritime (SHIP)
Among small-cap shipping stocks, SHIP stock looks interesting. For the current year, the stock is higher by 93%, but looks attractive for further upside.
Seanergy has a capsize fleet of 16 vessels with an average age of 11.8 years. For Q1 2021, the company reported revenue of $20.4 million and an adjusted EBITDA of $7.9 million. The company also reported cash and equivalents of $58 million. The cash buffer is likely to be used for fleet expansion.
Recently, the company reported the acquisition of a modern capsize vessel. At the same time, the company sold the oldest vessel in the fleet. In 2021, the company has already acquired five Japanese built capsize vessels.
In terms of growth plans, Seanergy is looking for further vessel acquisition and deleveraging in 2021 and beyond. On the flip-side, further equity dilution seems likely as the company plans growth coupled with deleveraging.
However, if the company can secure long-term charters, I don’t see dilution as a concern. It’s worth noting that the company’s customers include major miners like Rio Tinto (NYSE:RIO), Vale (NYSE:VALE) and BHP Billton, among others. With healthy growth in the metal and mining industry, the company is likely to deliver healthy numbers in the coming quarters.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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