There is much allure to investing now in the shipping sector.
It is a basic industry that plays a vital role in global commerce. Many of the stocks are trading at very low prices due to the impact of The Great Recession. Some still pay big dividends. Legendary investors like Wilbur Ross are buying. But the best stock to profit from the rebound in the shipping sector is with a company that operates from dry land.
Expeditors International of Washington (NASDAQ:EXPD) provides logistic services to shippers and others for transportation needs in the United States and internationally from its Seattle headquarters. It is far superior to shipping companies for growth, value and income investors.
For growth investors, Expeditors International is expanding operations. The earnings-per-share (EPS) growth trend is very bullish. As the table below shows, it is much healthier than the EPS trends for Frontline Ltd. (NYSE:FRO), DryShips Inc. (NASDAQ:DRYS), Nordic American Tanker Ltd (NYSE:NAT), and Teekay Tankers Ltd. (NYSE:TNK).
|Metric||Expeditors International||Frontline||DryShips||Nordic America Tankers||Teekay Tankers|
|Previous 5-Year EPS Growth||11.14%||(43.83%)||(64.46%)||(73.04%)||(55.61%)|
|EPS Growth Rate Year||12.80%||(428.85%)||(134.46%)||(8720.83%)||(140.58%)|
|Projected 5-Year Growth Rate||12.50%||5.00%||(9.90%)||0.00%||10.00%|
As shippers, these companies were hit hard by falling business falling charter rates due to the impact of the Great Recession. Before The Great Recession hit, there was tremendous overbuilding. As a result, the share price of each has plunged. Frontline was trading at over 70 in 2008 and is now around $3.60. In 2007, DryShips was over $120 a share and now is under $2.20. Around $45 in 2007, the stock of Nordic American Tankers is about $8.70. Now under $2.90 a share, Teekay Tankers was over $24 in 2008. By contrast, in February 2008, Expeditors was trading beneath $40 a share. At present, it is going for around $43 a share.
In addition to the way the company avoided much of the carnage of The Great Recession from not overbuilding and then being decimated by plunging rates, value investors should find the clean balance sheet of Expeditors International of Washington to be attractive, too. Of great appeal is that Expeditors International has no debt. The chart below shows how larded up the balance sheets of Frontline, DryShips, Nordic American Tankers, and Teekay Tankers is with debt. That high level of debt combined with a falling EPS growth rate could take these companies under. That makes these shipping companies value traps, rather than value plays.
Income investors are buying the future dividend stream of a company. For long term income investors, Expeditors International is far superior in this regard due to its low dividend payout ratio, increasing earnings, and zero debt. There is a dividend growth rate for Expeditors International of over 20% over the past five years, while it is negative or zero for Frontline Ltd. (NYSE:FRO), DryShips, Nordic American Tankers, and Teekay Tankers. If the growth rate of the last five years for the dividend of Expeditors International continues, it will almost double every three years.
|Metric||Expeditors International||Frontline Ltd||DyShips||Nordic American Tankers||Teekay Tankers|
|Dividend Payout Ratio||33.00||0.00%||0.00%||n/a|
|5-Year Dividend Growth Rate||20.52%||0.00%||0.00%||(25.27%)||n/a|
Source: The Motley Fool CAPs and Finviz
A major reason that the dividend yield for Expeditors International of Washington is so low is that the stock has surged in recent market action. Up 20% over the last six months, Expeditors International has gained from the global economy starting to recover from The Great Recession. With China posting strong gross domestic product numbers last quarter, global commerce should be picking up again. From that, the share price of Expeditors International of Washington should continue to rise.
The article Invest in Shipping With This One Stock originally appeared on Fool.com and is written by Jonathan Yates.
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