It's An "Excellent Time To Overweight Shipping Positions": J Mintzmyer
The shipping expert offers his take as to why he thinks now is time to pounce on the sector - and what names he's looking at.
When it comes to shipping, there are few people whose opinion I trust more than J Mintzmyer. He has been covering the sector for as long as I have been in the game and is a top class individual that I’ve had the pleasure of meeting numerous times. I’m happy to offer up his latest take on why he thinks it’s time to pounce on the sector and, more importantly, what names he is looking at.
J is a renowned maritime shipping analyst and investor who directs the Value Investor's Edge ("VIE") research platform on Seeking Alpha. You can follow him on Twitter @mintzmyer. J is a frequent speaker at industry conferences, is regularly quoted in trade journals, and hosts a popular podcast featuring shipping industry executives.
J has earned a BS in Economics from the Air Force Academy, an MA in Public Policy from the University of Maryland, and is a PhD Candidate at Harvard University, where he researches global trade flows and security policy. Here’s J’s latest.
Shipping stocks are offering investors one of the best investment setups I have seen in my career, with valuations rivaling record lows set in mid-2020. Meanwhile most balance sheets are pristine, shareholder returns are ramping up, and the supply-side setup is the best in modern history. Furthermore, the largest environmental regulation in history, EEXI 2023, begins in just three months with a multi-year phase-in through 2027 via a variety of measures including stringent carbon-emission regulations ("CII") which will significantly slow down much of the global fleet between 2023 and 2027. These impacts will constraint a supply-side which already offers the best setup in modern history.
The demand-side is more in-flux. Tankers are benefitting from Ukraine-related disruptions including the upcoming proposed EU ban of Russian oil. Dry bulk is heavily dependent on iron ore, coal, and grain flows. Containerships are primarily a congestion-driven story with huge pending EEXI and CII impacts. LNG and LPG are poised to profit from significant re-routing of global energy flows towards Europe.
I always enjoy discussing the markets with Chris (QTR) and am happy to share this latest update about the shipping sector. Our team at Value Investor's Edge has covered these markets for over 7 years, and I personally have been involved for nearly 15 years.
I have followed the shipping industry for nearly 15 years and observed numerous segment-cycles. The time to get long shipping is when there is a massive dislocation between broad market sentiment and segment-specific fundamental setups. The last similar dislocation occurred during mid-2020 when broad market ignorance led to the dumping of otherwise excellent-positioned firms across the dry bulk, gas, and containership segments. This setup is similar in terms of valuations, but the supply-side setup is even stronger and firm balance sheets are rock-solid. Unlike in 2020-2021, when most firms prioritized deleveraging, this time around, massive shareholder returns are in store if rates perform well.
We love this sector because there are often extreme disconnects between macro perceptions and the actual underlying fundamentals across the shipping segments. One clear example: most investors think of 'shipping' as a monolith, but it is actually at least six different sub-segments, each with their own independent supply and demand fundamentals. A recent example: many people associate FedEx (FDX) and their recent horrendous guidance with "shipping," but package delivery and business logistics has almost nothing to do with the daily fundamentals of the maritime firms we cover. I have included an excerpt from a recent public report below, and I look forward to everyone's thoughts and feedback!
There are never any guarantees in shipping. Demand-side outcomes can be finnicky and are prone to black swan events in both directions. However, the best time to get long is when valuations are cheap, balance sheets are strong, and the supply-side is lopsided in the favor of owners and investors.
In this brief update, I share four overall picks which are poised to benefit from the current environment: