Dealmaker’s Diary: Hop on Board This Global Shipper With a 9% Yield

Alpesh Patel|April 18, 2024

Volatility is picking up. That means we could see profit-taking after the market’s straight run up.

We need to be even more careful in the stocks we look at… and look at the data very closely.

And that’s what I’ve done in this week’s Dealmaker’s Diary.

This global crude oil shipper ticks all of the boxes…

Profits are growing at a 37% clip. Revenue… a steady 15% per year. And the stock is cheap at a forecast P/E of 8.8.

But what really caught my eye is its risk versus reward… there’s a lot to like based on the current market. The stock has low volatility… and both its Sortino and return alpha are outstanding. The numbers I’m seeing are quite rare.

You won’t want to miss this one… and did I mention it pays a 9% yield?

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

 

Transcript

Welcome, friends, to Stock of the Week.

Now, we are probably expecting a bit more volatility. You don’t need me to tell you that. You don’t need to be a genius to expect that.

And given the market run-up since January 2023, which has been virtually a straight line up with the exception of August to October last year, on top of what’s happening in the Middle East, you’d think people might have an excuse to pull some money back.

With that all in mind, we have to be careful about the kinds of companies we’re picking, and we really need to keep an eye on all of that data.

So let’s have a look at Frontline (FRO). It’s a shipping company, a world leader in the international transportation of oil.

Oil prices are definitely going to go up, and we’re going to need transportation of those products and refined products.

Frontline owns and operates very large crude carriers, and, well, I don’t see that need dropping at any point.

It was the numbers that attracted me. The company is growing profits at a large annual rate of 37.6%. Sales been growing at over 15% per annum. Market cap – it’s a big company – is $5 billion.

And it’s been paying dividends, which is always nice.

Now, let’s look at my GVI rating, my growth-value-income rating, which is, remember, out of 10. This is the proprietary algorithm I use to look at the growth of a company, the valuation of a company, the dividend yields of a company… where value is ranked greater than growth, ranked greater than dividend income.

Frontline is a 9. Anything that is 7, 8, or 9 meets my minimum criteria.

The forecast P/E is 8.8 for a shipping-related company, as opposed to tech. It’s not expensive. It’s not dirt cheap, but it’s not expensive. You’re paying 8.8 dollars for every expected or forecasted dollar of earnings.

CROCI – cash return capital invested – is weak at 1.1%. But it’s not negative. And I expect this will actually improve as oil prices rise and global growth increases. CROCI is, as you will know, a formula invented by Goldman Sachs Wealth Management. It’s a pretty good forecast of stock prices. And it’s better to get a higher number.

Click here to learn more about CROCI.

The Sortino is above 1, which is good. That’s the average return versus the risk. Above 1 is rare for a company. I’d probably say only about 5% of all companies get there.

Volatility is below 20%. I like that in a market that is about to become more volatile. I would have expect this in other stocks, but not companies that are shipping crude oil.

Return alpha is 11.2. Alpha, remember, shows that when the markets go up, you’ve got more when the markets fall. You don’t fall as far. You want that.

That’s good. That’s a good number, actually. It’s one of the best.

The slight downside with this one is, of course, the stock has been skyrocketing. It has, since January 2022, pretty much quadrupled.

Now, what are the worries? Well, it’s a little bit overbought on momentum. It’s getting a little bit toppy, but as I said, the valuation is still good. Growth is still well projected. So I’m not too pessimistic about that.

Obviously, as you know, in GVI Investor, we get into a lot of depth about all of these factors and look at all of these things to make sure they all stack up nicely.

But that’s probably one factor that is a little bit concerning me.

On a measure of valuation by discount cash flow, it is undervalued still, which again offsets the momentum story somewhat. So that adds a bit of positivity.

Hope that gives you a bit of a context.

Like I said, with everything happening in the Middle East, I suspect that this may well be able to navigate – sorry for the shipping-related pun – things a little bit better than many other companies in the short term.

Thank you very much.