In this article, we shared our list of the 11 best oil tanker stocks to buy now. You can skip our analysis of the oil tanker industry and its demand growth and go to 5 Best Oil Tanker Stocks To Buy Now.
The boom of the oil tanker industry is undeniable, as the world has been heavily dependent on the steady flow of oil transfer from one point to another. The Covid-19 pandemic resulted in upsetting effects on the supply chain of oil which experienced an unprecedented decline in demand. According to the International Energy Agency (EIA), the average barrels of oil consumed per day decreased to an upsetting 30 million during the pandemic as compared to the usual consumption of 65-70 million barrels per day. The decline in demand forced the reduction of oil production because of the unavailability of land-based storage areas for oil. However, oil producers were partially able to keep producing above the demand as they were able to use oil tankers as an alternative for oil storage. So, the oil tanker industry actually benefitted from the pandemic despite the huge collapse in demand. In a separate article, Business Standard noted that an increase in sea storage sparked 6-8 times higher charges where vessels may charge up to $200,000 per day from $25,000 per day before the pandemic.
Despite the global efforts to reduce climate change and rely solely on renewable sources, the demand for oil continues to increase in relation to oil drilling and transport. In a report by Statista, from 1980 to 2020, the global oil tanker fleet deadweight tonnage (DWT) increased around 77% throughout the 40 years. As of 2020, the number has already stood at 601 million deadweight tonnage.
The collapse of oil demand in 2020 is a temporary phenomenon. Economists expect oil demand to come back in 2021 and we can already see this in oil prices as US benchmark crude futures surpassed $66 on Friday.
Oil and Gas Forecast
The oil and gas industry is highly volatile as both supply side shocks and demand side shocks affect the industry at any time. Amongst most of the industries that recovered from the COVID-19 pandemic, the oil and gas industry was left with the most uncertain rebound. According to an article published by Deloitte, investors were not as bullish on the industry during the pandemic, as S&P 500 index oil prices and energy stocks underperformed since July 2020. In the same article it was shared that the US oil and gas companies had to furlough around 14% of their employees because of the lower demand in the sector. The 2021 demand for oil will recover, however, the number is still expected to be around 5-7% lower than pre-pandemic levels.
Growth of the Oil and Gas Industry
The Dallas branch of the Federal Reserve surveyed oil producers during the fourth quarter and found that most of the companies will limit their capital expenditures in 2021. Some companies’ hesitations were brought about by the increase in electric vehicle (EV) demand and governments’ efforts to achieve net zero-emissions by 2050. It is true that the long-term trajectory of oil consumption isn’t encouraging for oil investors, however, we are still a long way away from that. McKinsey estimates that the global demand for oil will exceed 100 million barrels per day by the end of 2021 and gradually increase to 102-10 million level by 2025. According to McKinsey the oil industry spent $309 billion on development and maintenance capital expenditures in 2019 and projects a 34% decline in 2021 to $194 billion. McKinsey also estimates that capital expenditures will only increase to $234 billion in 2022. We believe oil producers are going to be slow in investing and this will continue to push the oil prices higher in 2021, but oil industry is a very competitive industry and higher oil prices will lead to higher capital expenditures and more production by oil companies in 2022.
In order to identify the 11 best oil tanker stocks to buy now, we created a list of oil tanker stocks by searching Google as well as using articles like 12 Largest Oil Tanker Companies in the World published by Insider Monkey. We were able to narrow down our list to the 11 best oil tanker stocks using the hedge fund sentiment data.
We rely on hedge fund sentiment indicators because we have been able to use them to identify promising investment ideas in our premium newsletters. The portfolio of stocks that are shared in Insider Monkey’s monthly newsletter outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th, 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Keeping this in mind, let’s take a look at the 11 best oil tanker stocks to buy now according to hedge funds.
11. Nordic American Tanker Ltd (NYSE:NAT)
No of HFs: 5
Total Value of HF Holdings: $7.5 Million
We start the list of the 11 best oil tanker stocks to buy now with Nordic American Tanker Ltd. The Bermuda-based NAT uses its vessels to transport oil worldwide. Their fleet consists of around 26 Suezmax with 156,000 deadweight tonnage (DWT) each. As of March 6, NAT shares trade at $3.22 and offer a dividend yield of 12.42%. The COVID-19 pandemic did not greatly affect the company evidently, the company was able to post positive results. At the end of 2020, the company released a cash dividend of $67.2 million and reported a full-year 2020 income of $50 million. On March 1, the company’s CEO Herbjorn Hansson purchased 50,000 shares at $3.13.
At the end of the fourth quarter, a total of 5 hedge funds in Insider Monkey’s database of 887 hedge funds held stakes in Nordic American Tanker Ltd, compared to 10 hedge funds in the third quarter. Arrowstreet Capital is the biggest stakeholder in the company with, 2.0 million shares, worth $6.1 million.
10. Frontline Ltd (NYSE:FRO)
No of HFs: 6
Total Value of HF Holdings: $4.7 Million
The 10th best oil tanker stock to buy now is Frontline Ltd. The company operates 24 crude carriers, 28 Suezmax tankers, and 20 Aframax. The company offers a dividend yield of 28.25%. The year 2020 was one of the strongest for the company. FRO reported a net income of $412.9 million, or $2.09 per diluted share.
There were 6 hedge funds in our database that held stakes in Frontline Ltd, compared to 10 funds in the third quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP is the biggest stakeholder in the company, which had 364 thousand shares, worth $2.3 million at the end of December.
Evermore Global Advisors mentioned the stock in its Q2 2020 investor letter:
“Frontline (FRO US), one of the largest crude tanker vessel operators led by John Fredriksen, was the second largest detractor to Fund performance during the second quarter. Despite the limited company-specific news flow, the aggressive production cuts by Saudi Arabia, Russia and OPEC+ have put pressure on Frontline’s share price. Short-term traders and retail investors have interpreted this development as an immediate destocking of inventories that will reduce the absolute demand for seaborne transportation of crude. While frustrating, it is important to note that there have been several port disruptions and logistical dislocations related to COVID-19 that we believe will take more time than anticipated to destock the oil that was stored on floating storage (tankers) from the recent contango and demand. History shows that it did take longer than one expected when the destocking kicked off during the last time when there was a prevalence of floating storage on the water. In the end, the longer wait time to load/unload cargoes will maintain the reduced effective crude tanker fleet supply in the market. In addition, we believe Frontline has secured attractive rates during the second quarter which imputes strong free cash flow generation. Frontline paid a quarterly dividend of $0.70 per share in June, implying an annualized dividend yield in excess of 35%. We believe the company will continue to pay out excess cash flow as dividends as it has done historically.”
9. Tsakos Energy Navigation (NYSE:TNP)
No of HFs: 6
Total Value of HF Holdings: $12.3 Milion
Tsakos Energy Navigation is a senior in the independent energy transportation industry operating in Greece, Russia, Ukraine, the Philippines, and Romania. The company operates a fleet of 64 tankers with high ice capacity, shuttle tankers, and liquefied natural gas (LNG) vessels. Shares of TNP decreased 16% over the last twelve months. TNP offers a dividend yield of 5.42%. The company reported quarterly revenue of $143 million and a net income of $1.4 million in its latest quarterly earnings report. Here is how George Saroglou, the CEO of the company, summarized the oil markets in the company’s earnings call:
It has been an unprecedented year for global oil demand because of the COVID-19 pandemic and the measures to contain it. 2020 will be the first year of negative growth since the period of the Great Recession in 2008/2009. Year-end demand will be approximately 8.8 million barrels per day below the levels of the 2019 year-end demand or approximately down 8%. Most of the losses are in Jet Aviation fuel. The expectations for 2021, oil demand to grow by 5.4 million barrels per day. Full demand recovery to the pre-COVID-19 levels is deferred to late 2021 or in 2022 subject to how well the world will manage the resurgence of the pandemic, how effective the two vaccines are and the other vaccines that are being developed and how quickly they will be approved and distributed worldwide in order to allow the gradual return to normal, social and economic life.
At the end of the fourth quarter, 6 hedge funds in Insider Monkey’s database of 887 funds held stakes in Tsakos Energy Navigation, compared to 4 funds in the third quarter. David Iben’s Kopernik Global Investors was one the biggest hedge funds having stakes in TNP, with 1.1 million shares, worth $8.8 million at the end of December.
8. International Seaways (NYSE:INSW)
No of HFs: 8
Total Value of HF Holdings: $80.1 Million
The New-York based marine company, International Seaways, is one of the best oil tanker stocks to buy now with a fleet of 36 vessels. Including, 11 VLCCs, 2 Suezmaxes, 4 Aframaxes, 13 Panamaxes, and 4 MR Tankers. The company provides transportation for crude oil and petroleum products. Shares of INSW decreased 4.93% over the last twelve months. The company currently offers a dividend yield of 1.30%. At the end of the third quarter, INSW reported shipping revenue of $99.9 million, a notable increase compared to $71.3 million in 2019. Their fourth-quarter 2020 results will be announced on March 12.
With 4.0 million shares, worth $65 million, Cyrus Capital Partners is the biggest stakeholder of the stock at the end of December. Our database shows that 8 hedge funds held stakes in INSW as of the end of the fourth quarter, versus 15 funds in the third quarter.
7. Teekay Tankers Ltd (NYSE:TNK)
No of HFs: 9
Total Value of HF Holdings: $8.3 Million
The Canadian-based Teekay Tankers Ltd is one of the largest operators of mid-sized tankers that operates with over 6,000 employees. TNK specialized in crude oil, liquified natural gas, and liquified petroleum gas tankers. Shares of TNK decreased 5% over the last twelve months. In 2020, the company reported one of the most positive years for TNK where net income in the first quarter was $110 million compared to 14.6 million during the last quarter of 2019. However, at the end of the fourth quarter, TNK reported a GAAP net loss of $73.3 million or $2.17 per share. TNK’s biggest accomplishment in 2020 was the $419 million reduction in its net debt.
There were 9 hedge funds in our database that held stakes in Teekay Tankers Ltd, compared to 13 funds in the third quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the biggest stakeholder in TNK, with 251 thousand shares, worth $2.7 million at the end of December.
6. Overseas Shipholding Group (NYSE:OSG)
No of HFs: 12
Total Value of HF Holdings: $38.6 Million
The crude oil and refined transportation company, Overseas Shipholding Group, ranks 6th on our list of the 11 best oil tanker stocks to buy now. The company has over 110 vessels with a deadweight ton (DWT) capacity of 11 million each. On March 5, shares of OSG soared 10.23%. The stock currently trades at $2.37. At the end of the third quarter, the company reported revenue of $105.74 million. In December 2020, Overseas Shipholding Group accepted their second delivery of tank barge OSG 205, a 204,000 barrel capacity from Greenbier Marine.
According to our database, the number of hedge funds with long OSG positions increased at the end of the fourth quarter of 2020. There were 12 hedge funds that hold positions in Overseas Shipholding Group, compared to 11 funds in the third quarter. One of the biggest hedge funds having stakes in OSG is Cyrus Capital Partners, which had 8.9 shares, worth $19 million at the end of December. An insider purchased 834,933 shares at $2.47 in July 2020. The stock decreased 4% since then.
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Disclosure: None. 11 Best Oil Tanker Stocks To Buy Now is originally published on Insider Monkey.