There are a host of reasons to consider investing in shipping companies, according to Pure Value Metrics’ Richard-Mark Dodds, who said many of the stocks had attractive entry points. Shares of European shipping firms AP Moeller Maersk and Hapag-Lloyd are down by more than 30% this year, while Asian carriers Cosco Shipping and Evergreen Marine have fallen further by more than 45%. “We like shipping because, on a free cash flow basis, some of these companies have never historically been so cheap to their current market capitalization,” Dodds, chief investment officer at the Swiss fund manager, told CNBC Pro. Dodds’s fund holds shares of AP Moller Maersk and Hapag-Lloyd. It comes after an 80% decline in wholesale shipping prices from a peak of $11,100 a container in September last year to their pre-pandemic average of about $2,100, according to the Freightos Global Container Freight Index. The companies recognized the short-lived nature of the pandemic-era profits and returned double-digit dividends to shareholders in 2022. It’s in contrast to the bumper year of 2007, Dodds said, when ship owners mistakenly expanded their shipping fleets instead. This means that firms have avoided creating a glut in shipping capacity while also strengthening their balance sheets with excess cash. “The shipping companies are in a very special situation where they have a very strong future, strong future cash flows, which will fall but will still stay at high levels,” Dodds added. Buy-rated shipping stocks CNBC Pro screened for stocks in the shipping sector that could offer opportunities to investors. The stocks listed below meet the following criteria: Constituents of the SonicShares Global Shipping ETF Buy-rated by all analysts, according to FactSet data (with at least four analysts covering each stock) Analysts expected an increase in sales and earnings per share for 2023 U.S.-listed but London-headquartered Global Ship Lease offers the biggest potential upside to investors, according to the screen. The owner of medium- and small-sized container ships is expected to report EPS growth of 4.5% and total revenue growth of 4.3% in 2023, according to the median estimate of analysts polled by FactSet. “The company sits in a very solid position with a sizable revenue backlog, boosted during the [third] quarter with the fixing of 10 ships on term charters, and has plenty of flexibility going forward,” said Jefferies equity analyst Omar Nokta, whose below-consensus $25 price target still reflects a 49% upside for GSL shares. Shipping fleet ‘becoming more valuable’ Meanwhile, Dodds pointed toward another trend that could boost earnings: a reluctance by shipping owners to buy new vessels over environmental concerns. “Ships have diesel engines. So nobody wants to build any more of them because [ship owners] are not sure that they will still be able to use them for their whole 25-year lifespan,” said Dodds, whose fund had a positive return this year, even as most major markets fell into a bear market. “Building any other kind of ship, which has an electric motor or hydrogen [powered propeller], basically costs twice as much and can’t carry as much cargo,” the former Credit Suisse managing director added. “The [existing] shipping fleet is becoming more valuable as time goes by because fewer ships are being built.”
