What happened
The world does not currently have enough containers in the right places to handle global cargo demand, and Wall Street has seemingly picked the stock it believes will benefit from the shortage. Textainer Group Holdings (TGH) jumped 31.5% in May, according to data provided by S&P Global Market Intelligence, on expectations container rates should hold up well into the second half of the year.
So what
Textainer is in the business of buying, leasing, and selling marine cargo containers. It's not a glamorous business, but those containers are vital to the global shipping industry. And they are currently in high demand. The pandemic caused container manufacturing production to temporarily shut down, limiting new supply, and many of the containers that are in service are not in the right position to handle cargo awaiting shipment.
Image source: Getty Images.
The price for new containers has more than doubled since the beginning of 2020, and the shortage could last until 2022.
Textainer got an initial 10% boost midmonth when it reported quarterly earnings that beat expectations, and on CEO Olivier Ghesquiere's commentary that he expects "industry fundamentals will remain favorable through at least the remainder of 2021, mostly driven by a strong economy, continued demand for container trade and stable container production."
The stock jumped again late in the month, this time on no company-issued news. But Textainer was mentioned in a number of investment forums as a good way for traders to take advantage of the container shortfall.
Now what
Textainer's business should indeed benefit from current conditions, but be warned a lot of that upside now seems to be priced in. Shares of Textainer are up 252% over the past year, well above the 86% and 61% moves, respectively, by rivals CAI International and Triton International.
Textainer shares trade at competitive multiples, and I see no reason to suggest that the stock is overvalued or due for a crash. But understand this is a cyclical market and we seem close to the top of the cycle. Further moves of 30% in a single month seem unpredictable at best.
