Buy This, Not That: Get on Board This 16% Yielder

Shah Gilani|January 31, 2024

An industry where profits are up… margins are up… and stock prices are up…

Sure sounds like a good one to invest in, doesn’t it?

And that’s what I’m seeing with the shipping industry.

Trouble in the Middle East and the Red Sea has given the industry a boost. But the momentum may not be sustainable.

So while it’s a good time to look at shipping stocks… you need to take care.

In this week’s Buy This, Not That, I look at five shippers whose stock prices have popped.

But as you’ll see… they aren’t all BUYS.

See which ones I like – including one with a 16% yield! – in my latest video.

Click on the image below to check it out.

Transcript

Hi, Shah Gilani here with your weekly BTNT, as in Buy This, Not That.

Now, you guys have sent me a bunch of requests to comment on in terms of Buy This, Not That on shipping companies. With good reason.

A lot of you are seeing what’s going on with the shipping companies. They’re all popping. And that’s because, yes, profits are up… because costs are up. And margins are up because it costs more to ship because of the issues in the Red Sea… because of issues in the Middle East… and just because things are starting to pick up a little bit, let’s hope globally. But shipping stocks have popped.

So that’s where we’re going to go. I’m going to start with Safe Bulkers, symbol SB. Now, I wouldn’t say this is a long-term “buy it, put it away and sleep on it or wake up in a year or two and be happy.” I’m not so sure.

Because these stocks have had a pop. I’m not so sure that they can continue to go and go and go… because if we get some resolution in terms of what’s happening in the Red Sea, we get some resolution on stuff in the Middle East – again, those are two long shots – then these stocks could come down because they’ve had a nice little pop. But until we do that, I think you try and ride the momentum. So I’m going to say Safe Bulkers is a BUY, but it’s only a buy with a 20% stop. I mean, I prefer a tighter stop, maybe 10%, but this stock is only trading at $4.10. So the 10% stop here would be kind of tight on this at $4.10.

Look, this is a small cap, $460 million market cap company with 43% of the outstanding shares held by insiders. So I like that.

It’s got a 4.84% dividend yield, kind of like that. I’m going to call it just a little over a 30% payout ratio. So that seems pretty solid. It’s a profitable company, with a 29% profit margin. It’s paying its dividends. So yes, I just think it’s gotten a little bit ahead of itself. And down here, it’s not the star. But as far as Safe Bulkers goes, SB, I say you take a shot at it with a 20% stop if you’re so inclined.

Next up is Eagle, Eagle Bulk Shipping, symbol EGLE. Now, Eagle, again is a small cap. It has a $549 million market cap. It’s got revenues of $440 million. Profit margin is 9%. It’s not really up there with some of the other bulk shippers, but it makes pretty good money. The balance sheet is okay, nothing great. As far as dividend yield… 2.5%, so nothing really to even contemplate there. Who cares about 2.5%? But it’s on a 100% payout ratio. So they’re basically taking all of their net profits available to common shareholders and using it to pay a dividend. That’s pretty unsustainable. So I don’t like Eagle Bulk Shipping here, EGLE.

The only thing I do like about it is for a short-term trade. Almost 14% of the floating shares have been shorted. So you could get a pop out of Eagle. If you wanted to play Eagle, it’s trading around $55 and change. You want to trade it for a pop that maybe the shorts have to cover. And maybe it surprises on earnings. Then buy it. But put a $52 stop on it. That’s a very tight stop. Because if you get down to $52, it’s broken through support, and you don’t want to own it. So if you want to play Eagle Bulk Chipping, it is the same thing – 20% stop.

But here, play it for a pop at $55 and change. Use a $52 stop. Okay, I know that’s tight, but you don’t want to own it if it gets down there.

Next up is Star Bulk Carriers, symbol SBLK. It has a $1.83 billion market cap. So we’ve got a much bigger company here in terms of market cap. This stock is down something like 50%. It has $980 million in revenue. Profit margin is 22.5%. The income available to common shareholders totals $219 million. Pretty healthy. The balance sheet down here is okay. This is probably one of the better balance sheets in terms of operating cash flow, elaborate free cash flow and cash to debt. I kind of like this one. It also has a 7.22% dividend yield… 7.4% dividend yield on an 81% payout ratio. The stock’s trading at $21, we’ll call it $21.75. I like Star Bulk Carriers in here. I like it for that nice dividend yield. That 80% payout ratio, that seems pretty comfortable to me. And you’ve got a little bit of short interest here – 4.39% of the floating shares have been shorted. So again, I like this one here with a 10% stop. I think you can get some momentum. You’ll get paid to hold it. So Star Bulk, SBLK, I like here. I think it’s worth a trade. But again, use a 10% stop and try to ride the momentum here.

Next up is A.P. Moller Maersk, the big daddy in the business. Its symbol is AMKBY. Now, A.P. Moller Maersk has a $28 billion market cap. Revenue’s $57 billion. The other companies we’re talking about have a couple hundred million. Profit margin is 16%. It’s a monster. The income available to commissary holders totals $9.21 billion. Very profitable. The balance sheet is pretty reasonable here. I kind of like their balance sheet. Okay, it’s not the best, but it stands up. It’s had a tough couple of years. It’s down about half, so that means it can go lower. It’s trading now at $9 and we’ll call it $9.20. The low this year, not that long ago, was $6.99. So what worries me about this is it can get back down there because the stock’s kind of been all over the place, and it just hasn’t looked strong.

It’s got a 15.9% dividend yield on a supposedly 55% payout ratio. So you got to take a shot with this because if you get paid that dividends, then you’re doing pretty well right there. And if the stock does nothing, you’re up 15%-plus on the year. I’m hoping the dividend doesn’t… I would take a shot on the stock. This one… I probably would have a much tighter 10% stop on AMKBY. Why? Because at $9.18, $9.20, I don’t want to see it try and bank down and test its lows at $6.99. That’s an intraday low. If it was down there, if I didn’t own it, I would buy it down there. But I think it’s worth the [inaudible 00:07:50] if it can continue to go a little bit higher. Put a 10% stop on here, people. Keep it tight here because you could get down to maybe break $7, and that’d be a 20% loss. I just don’t think it’s worth holding it for that. If you get further momentum to the upside, you can ride a little bit. But raise your stops if you do.

Last but not least is Diana Shipping, symbol DSX. All I can say about this is it has a 19% payout dividend yield. Very nice, except it’s a 100% payout ratio. In other words, I’m making all the net profit that they have, and they’re paying the dividend with it, so that’s unsustainable. They’re going to have to cut that dividend. The stock’s trading at a shade above $3. I don’t think it’s really a long-term play. However, that being said, you want to play it for a pop. Set a very tight stop on there… very tight, like 10%. It might be worth a pop. Otherwise, this one certainly is a NOT for me. But again, some of these stocks, because of the way shipping has been going… and prices have been going higher and higher on containers and on routes and on everything having to do with shipping… the profit margins are looking a little better, and these companies are starting to shine a little bit.

That doesn’t mean things can’t turn around. But as far as Diana goes, it’s probably the weakest link in the group. So for me, it’s a NOT. For you… As a speculative trade, if you want to try – and this is true for all of these – use a 10% stop or just tighter. Try and ride momentum and use failing stops. If you could get those pops, you’re going up and up and up. Then raise your stops because these are going to be trades. And if they turn into long-term investments because they keep going up, then you’ll thank me then.

That’s it for today. Catch you guys next week. Cheers.

Shah Gilani Wall Street superstar and former hedge fund manager Shah Gilani is the Chief Investment Strategist of Manward Press and at the helm of the Manward Money Report newsletter and the Launch Investor and Alpha Money Flow trading services. He’s a sought-after market commentator and has appeared on CNBC, Fox Business and Bloomberg TV. He’s also been quoted in The Wall Street Journal, The New York Times and The Washington Post, and he’s had columns published in Forbes. In 1982, he launched his first hedge fund from his seat on the floor of the Chicago Board Options Exchange. He worked in the pit as a market maker when options on the S&P 100 Index first began trading… and was part of a handful of traders who laid the technical groundwork for what would eventually become the CBOE Volatility Index (VIX). He also ran the futures and options division at the largest retail bank in Britain. Shah gained notoriety for calling the implosion of U.S. financial markets (all the way back in February 2008) AND the mega bull run that followed. Now at the helm of Manward, Shah is focused tightly on one goal: to do his part to make subscribers wealthier, happier and freer.