The road to economic recovery is long for the US and other countries that have experienced negative growth or dismally small growth rates over the last several years. It seems that a variety of indicators are moving up more robustly than they did last year: job creation, housing contracts, retail sales, auto sales, manufacturing output. Now the Port of Los Angeles has announced that 2011 was the first year ever that the busy seaport exported more than 2 million containers of cargo — hitting 2.1 million containers. For the CNBC take on this, try this video link featuring Maria Bartiromo and Jane Wells: http://video.cnbc.com/gallery/?video=3000068154.
The marine shipping industry around the world was hit hard by the credit crunch and subsequent slowdown in demand for shipping, but the growth in container handling in Los Angeles may be an indicator that at least the container shipping industry is a place to look for current value and recovery in the short term. Keep in mind that when looking at shipping companies it is important to keep an eye on the balance sheet, because some shippers overcommitted to capital expenditures (new vessels) during the boom years, and have been stuck with heavy debt loads as a result.
At the same time one of the giants of the shipping industry, Maersk, has ordered 10 huge new container ships that will dwarf container ships of the past: http://nextbigfuture.com/2011/02/largest-container-ship-will-be-16.html. This blog does not follow big companies like Maersk, but there are several smaller container-ship companies that may merit the attention of investors.
First, a hybrid company: Honolulu-based Alexander & Baldwin Inc (NYSE: ALEX; http://www.alexanderbaldwin.com/). Although it is larger than most companies we write about, much of its revenue comes from gigantic land-holdings and agricultural interests. But it is one of the larger US-based container shippers as well, with 10 containerships in its Matson Line, which some Americans remember as the line that used to carry passengers from California to Hawaii on the white steamships, Matsonia and Lurline in times of yore. ALEX containerships ply the waters between Asia, the Pacific Islands (Hawaii in particular) and the US west coast. With sales of about $1.7 billion, low debt to equity, and rising earnings, ALEX may be a comfortable company for conservative investors, with its market cap of $1.9 billion, stock price of about $44.89, and trading volume of more than 230,000 shares per day. What’s more, ALEX plans to split to 2 companies, yielding a pure-play marine transport company with the Pacific as a playground: http://www.businessweek.com/ap/financialnews/D9RC234O0.htm.
Many economists would tell us that the second leg of a bull market (if that is indeed where we are today) is likely to make smaller companies more buoyant as to valuation, so some of the smaller containership companies are also worth having a look at.
Athens-based Box Ships Inc* (NYSE: TEU: http://www.box-ships.com/) is considerably smaller overall than ALEX, but its fleet of containerships stands at 7 vs ALEX’s 10, and TEU has 2 more vessels on order. TEU has only been publicly traded for less than a year, and has been paying a dividend of $0.30 per quarter — its policy is to pay substantially all of its operating cash flow out in dividends, minus the amounts required to maintain its operations, fleet and planned growth. The current stock price is about $8.39, which would make the yield about 11.9% on an annualized dividend of $1.00. With a debt to equity ratio lower than many shippers and a fleet whose average age is only about 4 years, it may be worth evaluating. Several analysts follow the company. Market cap is about $132 million and average daily trading volume is around 112,000 shares.
Athens-based Diana Containerships (Nasdaq: DCIX; http://www.dcontainerships.com/) is a sister of a drybulk carrier, Diana Shipping, and its market cap is in the same general range as TEU: $164 million, with trading volume of 128,000 shares per day, and a stock price of $7.10. Its dividend of $0.60 in 2011 gives a yield of about 9%. DCIX announced last week that it has acquired 2 additional vessels for a total of 9, so its fleet is a bit larger than that of TEU and only a tiny bit smaller than that of ALEX.
Also Athens-based is Costamare Inc (NYSE: CMRE; http://www.costamare.com/) , with a market cap of $900 million and a current stock price of about $14.97. Its $1.08 dividend from last year gives a current yield of about 7%, and the company recently declared a quarterly dividend of $0.27 payable in February. Costamare’s fleet consists of 59 containerships chartered to shipping lines, and its long-term debt is fairly substantial when contrasted with its shareholders equity. It was somewhat less profitable in 2011 than in 2010, but with a good bottom line. Caveat emptor.
Piraeus-based Danaos Corporation (NYSE: DAC; http://www.danaos.com/), also has a large fleet of 57 containerships, with 8 more on order, and its relatively low market cap of $363 million (when compared to Costamare with a fleet of similar size) is most likely due to its rather heavy debt load compared to its equity, and its somewhat spotty bottom line — though to be fair, GAAP earnings in the shipping industry may at times not be the only way to judge a company. DAC is trading at $3.33 on volume of about 32,000 shares per day, which also speaks to a certain reticence on the part of buyers. Higher risk sometimes means higher gains in the long run — but obviously not every time.
There are numerous other companies in the containership business, and this article does not pretend to be a complete survey of the field. Please do your own research; we do not make recommendations as to investments — we just write about companies we find interesting. Box Ships (TEU) is a client of Allen & Caron, the publisher of this blog, though we do not trade their shares.