There has been considerable debate as of late regarding the prospects of shipping stocks (albeit lack thereof). We are very interested in shipping stocks due to their “out of favor” nature and cheap valuations. Most shipping stocks are trading below their book value, obviously for good reason. From the charts below one notes that on an absolute and relative basis shipping stocks (using the ETF SEA as a proxy for world shipping stocks) are virtually unchanged since October last year.
One really needs to see some sort of evidence of a bullish breakout before getting too excited about the prospects of shipping stocks. However, that being said, we believe that the next big move for shipping stocks is to the upside…..and big it is likely to be (given that SEA has tracked sideways for almost 11 months. We are reasonably confident that a break to the upside will occur given the behavior of coal and mining stocks (as per the charts below). Over the long term at least we find it difficult to believe that basic materials and coal stocks can keep rising without associated advances in shipping stocks.
It is interesting to note that the ETF SEA now has options attached to it. So exposure can also be gained via options trades.
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