With the market logging record gains since the start of the year, it's hard to find good stocks to buy now that are still a bargain. Harder still is finding cheap equities with attractive yields and big upside potential.
But Money Morning Global Investing Specialist Martin Hutchinson found a sector that's in a spectacular uptrend.
As he explained to our Money Morning readers in late May, "If you're in the right stocks, you're going to see big growth and solid dividends for years to come."
The sector hitting Hutchinson's radar now is shipping stocks.
The shipping industry has indeed taken it on the chin since reaching its record high in May 2008. But the sector is headed higher, a trajectory that brings with it some very attractive profit opportunities.
Why Shipping Stocks Are Good Buys in 2013
Shipping is indeed the backbone of global trade. Over 90% of world trade is carried by the international shipping industry.
The industry is heavily influenced by a bevy of economic factors including consumption, production, financing and technology. All drive the supply and demand of manufactured goods, raw material and shipping services.
During the demand-driven commodity boom of the 2000s, shipping rates soared. New ships were coming online monthly.
On May 20, 2008, the Baltic Dry Index, a measure of how much it costs shippers to move raw materials by sea, hit 11,793. That was the highest level ever since its introduction in 1985.
Following the 2008 financial crisis, and ensuing collapse in demand and commodity prices, the shipping industry found itself dealing with much lower rates and huge excess capacity.
By the end of 2008, the Baltic Dry Index sank to 663. On Feb. 3, 2012, the index slipped to 647, the lowest read since 1986.
A number of factors were to blame: Eurozone sovereign debt crisis, high fuel costs, recessions in some member nations, a slowdown in China, the U.S. financial crisis and snail-pace recovery, tight lending and uncertainty about the global environment.
However, the tide is turning.
A fresh wave of new orders for some of the world's biggest cargo ships is painting a brighter picture for the global shipping market.
Last month, China Shipping Container Lines inked a $683 million contract for five new container ships. The fleet will be the largest of its kind afloat, with a capacity to carry 18,400 standard container boxes.
The deal comes on the heels of U.S.-based ship-owner Seaspan Corp.'s (NYSE: SSW) plans to purchase some 14 large container ships from Chinese and Korean shipyards.
"Many people are considering this as the bottom of the cycle and that there are a limited number of opportunities (to buy) at these low prices," Tim Huxley, chief executive at Hong Kong shipper Wah Kwong Maritime Transport (which placed orders for four large bulk cargo ships with an option to buy more), told The Wall Street Journal.
Shipping behemoth A.P. Moller-Maersk projects that container shipping capacity will increase 11% this year. Huxley sees a revival in the shipping market starting in 2014.
Many shipping companies are gearing up for a long and robust recovery by placing new orders for ships, which can take two years to build. The industry tends to have long cycles, and signs suggest the sector is just entering an upward one.
"The shipping industry is at an inflection point now," Geoffrey Cheng, head of transportation and industrial research at Bocom International Holdings Co. told The Journal. He cited stable fuel prices, which account for some 20% of shippers' costs, for the optimistic outlook.
Four of the Best Shipping Stocks to Buy Now
Hutchinson did some navigating and found the following four shipping firms that should reward investors swimmingly with some handsome capital appreciation and attractive dividends:
- Teekay LNG Partners (NYSE: TGP) is a Bermuda-based marine transporter of liquefied natural gas. Shares are poised to benefit in the booming LNG export business. Shares yield 6.34%
- DHT Holdings Inc (NYSE: DHT) an independent crude oil tanker company trades at just 23% of book value and yields 1.98%.
- Safe Bulkers Inc. (NYSE: SB) an international provider of marine dry bulk transportation services, trades a 4.7 times trailing Q4 income, below NAV and yields 3.8%. The company just announced a public offering and private placement of preferred shares. Funds generated will be used for vessel acquisitions and general corporate purposes.
- Capital Products Partners LP (Nasdaq: CPLP) operates tankers and bulk carriers, and runs marine transportation services in Greece. Shares trade a tad below NAV and yield 10.3%.
For a more detailed analysis from Hutchinson on why these are the shipping stocks to buy now - as well as which one could be the best for your investment goals - check out his full report: Buy This Sector Now.
The Wall Street Journal:
Surge in Orders Gives Hope to Shipping Market
The Baltic Exchange:
Hellenic Shipping News Worldwide:
Shipping industry leaders upbeat on sector outlook ahead of SEA ASIA 2013
The Journal of Commerce:
2013 Annual Review & Outlook-Maritime