Oil prices comprise the lion’s share of the news articles of most financial writers when it comes to any energy-related stock. The internet abounds with predictions by various experts and economists regarding the further development of oil prices. Sometimes the price range varies from $20 at the bottom to $200 at the top, while both bulls and bears have seemingly logical, constructive arguments supporting their opinions. Yet, only a few dozen people out of millions foresaw the development of the oil supply glut. But today, when it comes to investing in oil in today’s non-standard environment, the chances of being wrong are much higher than ever. However, there is a place in the oil industry where you can still make money regardless of where the oil price will go in the near future, and that is the oil-tanker market. Recently, The Baltic Dirty Tanker Index, which is designed to track changes in the fees of major sea oil transporters, has surged by 25% amid an oil supply increase, and we should expect more to come in the future. Among the largest direct beneficiaries of such growing shipment costs are the heroes of our article: Teekay Tankers Ltd (NYSE:TNK) and Tsakos Energy Navigation Ltd (NYSE:TNP). Let’s take a closer look at how these stocks performed during the year and which one might be a better ‘Buy’ today.
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds partly underperformed because they aren’t 100% long. Hedge funds’ fees are also very large compared to the returns generated, which reduces the net returns delivered to investors. We uncovered through extensive research that historically, hedge funds’ long positions in certain stocks actually outperformed the market greatly, and it has held true to this day. For instance, the 15 most popular small-cap stocks among funds has beaten the S&P 500 Index by more than 84 percentage points since the end of August 2012. These stocks returned a cumulative of 142% vs. less than 58% for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying, particularly in the small-cap sector, rather than what their net returns are.
Teekay Tankers Ltd (NYSE:TNK) is the world’s largest operator of medium-sized tankers, and has a market cap of $790.51 million. Year-to-date its stock has returned 35.57%, as it has surprised, in a good sense of the word, investors with its first quarter results. The shares are changing hands with a P/E ratio of 10.03 and P/S of 3.62. The market price of this company has already corrected by 10.68% from its 52-week high over the last week. As for Tsakos Energy Navigation Ltd (NYSE:TNP), it trades at a trailing 28.33x P/E multiple, and offers potential investors a 1.73x times price-to-sales ratio. On a forward PEG ratio basia both stocks look rather attractive, though Tsakos Energy’s 0.78x multiple is a marked deal better than Teekay Tankers’ 0.95x mark. From the fundamental point of view, Teekay Tankers takes the lead, having a higher return-on-equity, 17.09% versus 4.21% for its opponent, and higher five-year average revenue growth, 15.77% versus 2.40%. Both companies are similarly leveraged, operating with around 50% of debt to assets and quick ratio close to 0.66.
In terms of insider activity, the executives of both Teekay Tankers and Tsakos Energy did not make any purchases or sales of shares within the last year. At the same time, the activity of hedge funds, covered by our extensive database, indicates that at the end of the first quarter, 22 funds held around $78.9 million in the stock of Teekay Tankers Ltd (NYSE:TNK), an increase from the 19 funds holding $75.5 million in stock at the end of 2014. Meanwhile, 16 hedge funds reported owning around $103.35 million in shares of Tsakos Energy Navigation Ltd (NYSE:TNP), up from 15 holding $85.2 million three months prior. This yields the conclusion that investors are a little bit more inclined to believe in the brighter future of Tsakos Energy.
Brian Taylor’s Pine River Capital Management heads the list of Tsakos Energy Navigation Ltd (NYSE:TNP)’s largest shareholders. After a slight 4% cut in its position, the fund owns around 4.69 million shares of the company, valued at $38.34 million. During the first quarter Mark T. Gallogly, who manages Centerbridge Partners, added 25% to his holdings, making the total amount of shares in his equity portfolio equal to 1.94 million or $15.90 million in monetary terms. Brigade Capital reported holding 1.78 million shares in its portfolio, valued at $14.53 million, which is 102% more than it held at the end of 2014.
Among the most prominent stockholders of Teekay Tankers Ltd (NYSE:TNK), one can find Huber Capital Management, which owns some 7.04 million shares valued at $40.61 million, after the decision to add 31% to its holding. As the name of the fund suggests, Contrarian Capital, did the opposite to what has been done by its colleague, and decided to cut the amount of shares in its portfolio by 15% to 3.29 million shares with a market value of $18.86 million. Steve Cohen’s Point72 Asset Management finished the first quarter with 109% more shares of Teekay Tankers than it held three months, at 750,900 shares equal to $4.31 million in nominal terms.
Finally, combining the three different perspectives of valuation, fundamental factors, and the recent decisions of hedge fund managers, we think that Teekay Tankers Ltd (NYSE:TNK) at the moment provides better potential for future increases in shareholder value.
Winner: Teekay Tankers Ltd (TNK)
Disclosure: None
