Billionaire investor Wilbur Ross earlier this month once again suggested that the shipping industry is ripe for investment, presenting a handful of good stocks to buy now.
Ross knows how to spot a beaten-down sector and turn its brightest opportunities into mega-profits. This "vulture investor" previously invested in troubled sectors like coal, steel, and auto parts and cashed out years later with enormous gains.
This time, appearing on CNBC, Ross said that shipping companies were the next growth story.
In fact, earlier this year Ross told Bloomberg TV that he plans to invest as much as $2.5 billion in the shipping sector.
Here's why Ross is looking for good stocks to buy now in this beleaguered industry.
Why These Shipping Names Make Good Stocks to Buy Now
By all accounts the global shipping industry has been distressed for several years now.
Overcapacity has been a serious problem since 2007 when a record level of capacity was added – just before the economy collapsed. Ross pointed out that shipping companies over-ordered new vessels prior to the global economic slowdown and rates plummeted along with vessel prices.
Cumulative losses in the industry have run to more than $7 billion in the past four years, according to industry analysts.
Container ships carry 90% of global trade and need an economic recovery for boom times to return. As we have seen that is taking longer to develop than most had hoped.
But the overcapacity has led to older, less fuel-efficient ships being scrapped. That's why Ross said the lease rates are nearing a bottom – the extra storage space is being eliminated.
Pricing has fallen by 80%, but Ross said the market will now begin to stabilize and start growing again in 2014.
Commerzbank analysts recently told investors that, like Ross, they expect business to stabilize at today's weak levels before improving in the second half of 2014.
Ross is raising $500 million for a private equity fund to find good stocks to buy now in shipping. He already has a controlling stake in Navigator Holdings Ltd., a major shipping concern.
Good Stocks to Buy Now as Shipping Recovers
As the economy works toward recovery over the next couple years, shipping stocks appear to offer an extraordinary opportunity. Most of the publicly traded shipping stocks trade at very low valuation based on total assets and earnings potential.
But as the industry turns around, these stocks could easily become market leaders and trade at two to three times their current share price.
Here are a couple stocks to buy now if you want to scoop up low-priced shares of a recovering sector. They have yields exceeding 5% and one-year price targets around 20% higher than their current share price.