Why Shipping Stocks Are Booming

Back in December, I singled out my favorite dividend stock for 2013: Textainer Group (NYSE: TGH  ) . The company specializes in leasing out its intermodal containers -- those things you see on boats, trucks, and trains -- to customers throughout the world, while offering up a pretty nice dividend, to boot.

Since publishing the story, Textainer is up over 20%. But instead of patting myself on the back, one look at the larger shipping industry shows that Textainer is not alone. Read below to find out why shipping stocks are booming right now, and at the end, I'll offer up access to a special free report on the Motley Fool's top stock for 2013.

First, a little background
While Textainer itself isn't exactly a shipping company per se, it usually is subject to the same ups and downs as the larger shipping industry in general. And when it comes to the larger industry, the last two years have been absolutely brutal for most companies. Check out the performance of some of the biggest industry players from the start of 2010 to the end of 2012.

Company

Change in Earnings 

Change in Stock Price 

DryShips (NASDAQ: DRYS  )

(100%) *

(74%)

Safe Bulkers (NYSE: SB  )

(23%) 

(52%)

Navios Maritime (NYSE: NM  )

(62%) 

(38%)

Diana Shipping (NYSE: DSX  )

(49%) 

(52%)

Source: E-trade, Fool.com. Earnings for first 3 quarters of 2010 vs. 2012, as many companies have yet to report 4th quarter earnings for 2012. Stock change from Jan. 1, 2010 to Dec. 31, 2012. *Earnings for DRYS currently negative.

As you can see, it hasn't exactly been a good time to be investing in shipping companies over the past two years. There are several factors that converged to tank the industry. Foremost was a confluence of a shipping supply glut brought on by the rosier pre-recession times and the accompanying slowdown post-2008.

Shipping companies literally started building out new boats at the exact moment the global economy began to tank. Repercussions can still be felt today,  as DryShips just paid a company $21 million to take two tankers off of its hands. Think about that: It gave away two unfinished tankers and a chunk load of cash in the process.

Explanations for the rebound
There are several reasons one could point to for the recent rebound of certain stocks. The first is simply that shipping stocks were pretty cheap. Take a look at what these four companies were trading for on Jan. 1 of this year, and how much they've gone up since.

Company

P/E on
Jan. 1 
 

Stock Price Change since Jan. 1 

DryShips

N/A

29%

Safe Bulkers

4.9

13%

Navios Maritime

12.4

10%

Diana Shipping

7.5

16%

Source: YCharts, Google Finance. N/A=Not applicable due to negative earnings

But just because a certain sector of the market seems cheap isn't necessarily enough to explain a sudden rebound. To dig up some answers in this area, I'm going to defer to fellow Fool Alex Dumortier, who wrote an excellent piece  recently, highlighting where we might find ourselves right now in the cyclical shipping industry.

Alex points out that though many sectors have experienced something of a recovery since the lows of the Great Recession, shipping isn't necessarily one of them. Even though 95%  of the world's trade travels by ship, the Baltic Dry Index (BDI) -- which measures the price of moving major raw materials over several key routes -- is near an all-time low, sitting an astounding 94% below the high it achieved in May 2008. 

And when Alex took a look at the cyclically adjusted prices of some major shippers, he found that "some of the shippers certainly look tantalizing."

Should you jump in now?
To be certain, my money -- both figuratively through my All-Star CAPS profile, and literally in my real-life holdings -- is behind this movement, but only in the case of Textainer. As it stands right now, I don't necessarily consider myself an expert in shipping, and though the macro trends seem enticing, I like to stick with what I know.

While shipping stocks certainly seem like they could be poised for a breakout 2013, our Chief Investment Officer thinks there's an energy company that stands to benefit the most in the coming year.

Find out which stock it is in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.


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