Two Shipping Stocks (!) to Like…

Today’s commentary features the sage technical work of our good friend Larry Amernick, who sees speculative value in two NYSE-listed shipping stocks:  K-sea Transport Partners (KSP) and International Shipholding Corp. (ISH).  Larry has spent six years developing a sophisticated array of forecasting tools that have been remarkably prescient lately. He sees K-Sea as an arbitrage against oil prices, and International Shipping as a good bet to outperform its sector. We offer his analysis of both of these stocks as counterpoint to our usual glum view of shares in general. These are timely “buy” recommendations, and we’ll let Larry, publisher of the  weekly Amernick Market Report (click here for a free sample), tell you why. Here is the report that he mailed out to subscribers Thursday night:

“During the past few weeks, many in the financial media pointed to the strength in the Baltic Dry Index (BDI) as a reason to turn bullish on equities. It is true that the Transportation Sector is a leading indicator and early bull market leader. If the market was reversing its long-term and secular downtrend, then the shipping sector should be one of the leading groups.

More Tankers

“One of the leading experts of this industry is Trevor Jones, an economics professor at South Africa’s KwaZulu-Natal University. According to Dr. Jones’ latest research, the global container fleet will increase by 49%, the global tanker fleet will increase by 44%, and the dry bulk fleet will grow by 60% during the next few years. Jones believes that shipping rates will stay contained until the new tonnage is absorbed by the global shipping fleets while demand comes into equilibrium with growing capacity.

“Australian Transport and Logistics News reports that the combined capacity of the containerships lying idle is 1.35 million TEU (twenty-foot equivalent unit). Because the news is so glum for this sector, it is worth taking a technical look at the sector to see if there is any life there. First, let’s compare the Baltic Dry Index with the Dow Jones Transportation Index and the Market Guide shipping Index. Here are there respective charts: “The sharp degree of correlation between the two occurred during the past four years. We must now ask, will the BDI forecast higher prices for shipping stocks in the future? The BDI is moving up, but for how long and how high? Will shipping stocks follow the BDI’s lead?  The 49 stocks of my shipping universe had an average correlation of 0.9286 to the S&P 500 and 0.8999 to the Dow Jones Transportation Index. This strong “market mass” is an important characteristic of this secular bear market.

2 Stocks Among 49

“Of the 49 stocks, two are highlighted. They are, International Shipholding Corp. (ISH) and K-Sea Transport Partners Limited (KSP). ISH is down 26.8% so far this year but has the greatest potential to outperform. Part of its business is providing maritime transportation to government clients. This includes the U.S. Military Sea Lift command. The passage of the new stimulus package led to some buying interest in this stock. The technical picture for ISH is not as strong as the previous ones, but the chart shows long-term stability:

“Standard Error Bands highlight that ISH is primarily in a long-term trading range. The MACD gave a short-term buy signal, which is about to be confirmed by my proprietary Leading Indicator. Upside potential for this stock is 21.52.  Buy at 18.10 with a 17.50 stop.

“Regarding K-Sea Transport Partners Limited, it is up 23.6% so far this year. The company provides transportation (tank barges and tugboats) for petroleum products in the United States. Despite its early strength, the stock is technically neutral but worth a second look.

“KSP is strictly an oil play. It rallied in anticipation of an increase in the price of oil! Therefore, it is an arbitrage play.  The stock is trading below both its 13-day (red) and 49-day (green) EMAs. It’s trading above the blue trend line, which provides underlying support.  Today, the stock was up 3.25% on twice the average daily volume. Use a bid of 15.50 with a 15.00 stop to acquire the stock. Sell at 18.00. Notice the corresponding movement of the stock (black) with the price of oil (red).

“Shipping stocks are not the strongest, but in a weak market environment a few stocks would appear to offer timely trading opportunities.”

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