By Philip van Doorn, MarketWatch
Last year, David Marcus outlined a strategy for making money with five marine shipping stocks, because new industry pollution standards were setting up a declining supply of ships.
The COVID-19 outbreak has reversed the group’s gains that Marcus, the CEO of Evermore Global Advisors in Summit, N.J., enjoyed last year.
However, he sees one short-term silver lining for two of the companies and remains confident the entire group will turn out to be long-term winners. During an interview, Marcus outlined the way forward for his favorite shippers, while also identifying another special situation he was looking to take advantage of: IAC/InteractiveCorp.’s /zigman2/quotes/205118493/composite IAC -0.30% planned spinoff of its 80% stake in Match Group /zigman2/quotes/207178501/composite MTCH +0.12% .
Marine shipping setup
Back in August, Marcus and Thomas O, a portfolio manager with Evermore, said new international caps on sulfur emissions for marine shippers, known as IMO 2020, were going to accelerate a decline in the global fleet, altering the supply/demand balance, raising day rates, cash flow and stock prices. Marcus and O shared five stocks selections — two tanker companies and three bulk (or container) shippers.
‘These companies have said all excess dollars will be given to shareholders. They do not do buybacks. We expect very high dividend yields.’
David Marcus, CEO of Evermore, on marine tankers.
Then in early January, Marcus said the expected supply decline was taking place, with companies forced to scrap older ships that were too expensive to be retrofitted to meet the new emissions standards, and that day rates had “substantially picked up.” The five marine shipping stocks had all seen double-digit returns since the August conversation.
But the coronavirus crisis reversed those gains. Here’s how the five stocks have performed for various periods since Aug. 7, when Marcus first discussed them with MarketWatch:
|Petroleum and refined fuel||Ticker||Total return - 2020 through April 3||Total return - Aug. 7, 2019, through April 3, 2020||Total return - Aug. 7, 2019, through Dec. 31, 2019|
|Frontline Ltd.||/zigman2/quotes/202372487/composite FRO||-36%||19%||86%|
|Scorpio Tankers Inc.||/zigman2/quotes/205669834/composite STNG||-62%||-39%||61%|
|Data source: FactSet|
|Container shippers||Ticker||Total return - 2020 through April 3||Total return - Aug. 7, 2019, through April 3, 2020||Total return - Aug. 7, 2019, through Dec. 31, 2019|
|Scorpio Bulkers, Inc.||/zigman2/quotes/203598835/composite SALT||-70%||-62%||29%|
|Genco Shipping & Trading Ltd||/zigman2/quotes/200735795/composite GNK||-49%||-34%||31%|
|Star Bulk Carriers Corp.||/zigman2/quotes/208977084/composite SBLK||-58%||-42%||36%|
|Data source: FactSet|
You will need to scroll the tables to see all of the data.
“This year, even before the coronavirus news, the maritime sector had been very weak. You started to see the slowdown in China, you started to see day rates come down. We have generally kept with the positions overall,” Marcus said during an interview on April 2.
Only one of the five, Frontline /zigman2/quotes/202372487/composite FRO +0.44% , was still up as of the close on April 3 from when Marcus recommended it in August. Frontline runs crude-oil tankers while Scorpio Tankers /zigman2/quotes/205669834/composite STNG -1.44% moves refined petroleum products.
Evermore’s update — tankers
During the interview, Marcus and Thomas O explained that the current economic situation for crude-oil tankers is actually favorable, because of the decision of Saudi Arabia and Russia to increase production even as international demand collapsed. President Trump said on April 2 that he expected those Saudi Arabia and Russia to negotiate production cuts of 10 million barrels a day.