What happened
One of the most respected names in infrastructure investing made a move this week that implies it believes shipping stocks are oversold. The market took notice, sending several shipping stocks up as a result.
Shares of Triton International (TRTN +0.00%), which got a big-premium buyout offer, were up 33% for the week as of Thursday midday, according to data provided by S&P Global Market Intelligence. Shares of other shipping companies, including Zim Integrated Shipping Services (ZIM 0.77%) and Textainer Group Holdings (TGH +0.00%), are going along for the ride, up 16% and 13%, respectively.
So what
It has been a choppy few years for shipping stocks and companies involved in helping manage supply chains. The pandemic created supply and demand imbalances that helped boost the price for transporting goods, but recently, fears about the economy have caused these stocks to underwhelm.
That all changed this week, when Brookfield Infrastructure Partners announced plans to acquire Triton for $13.3 billion in cash and stock. The deal for Triton, a lessor of intermodal cargo containers, offers Triton holders a 35% premium over the stock's pre-deal price.
Brookfield has a strong reputation on Wall Street as a shrewd evaluator of investment opportunities, and its willingness to pay up for Triton helped give other, related stocks a boost. Textainer is one of Triton's closest competitors, with a similar container leasing-focused business. Zim is a shipper with a fleet of ships that transport those containers around the world.
Coming into this week, these stocks were down between 15% and 80% from their 52-week highs due to investor fears that a slowing economy would cut into demand for goods, which in turn would mean a slowdown in shipping. Brookfield apparently sees enough potential upside in the sector that is willing to look past near-term weakness. Following the deal announcement, investors are doing the same.
NYSE: ZIM
Key Data Points
Now what
There is good reason for long-term investors to be optimistic. These containers are how goods are moved, and there is no reason to believe either the containers, or the ships needed to take them across oceans, will fall out of favor anytime soon.
But the post-deal enthusiasm could prove to be short lived. Brookfield is likely going to have to be patient to make this deal work out for it, and in the meantime, conditions could get worse before they get better. Once the deal closes, Triton has Brookfield's ample balance sheet to fall back on, but these other independents do not enjoy the same luxury.
For investors interested in buying in, it appears likely the Triton deal will close as planned, with little remaining upside from getting involved. Both Textainer and Zim could be intriguing options, but don't expect the quick 35% boost from those stocks that Triton holders enjoyed this week.
