Shipping stocks, including Danaos, ZIM Integrated Shipping Services, Star Bulk Carriers, Hapag Lloyd, and A.P. Moeller Maersk gained on the back of supply bottlenecks and strong demand for goods, which pushed freight rates higher in 2021. However, the recent easing of supply-chain issues and a weak global macro environment dragged freight rates lower, implying challenges ahead.
Given the challenges, these stocks have trended lower and reversed some of their gains.
Commenting on the weakness in the sector, Deutsche Bank analyst Andy Chu stated that “Freight rates have collapsed from record levels in the second half of 2022, normalizing back to pre-COVID levels.” Besides for the easing of supply problems, the analyst blamed relatively weak demand for the decline in freight rates.
Chu highlighted that due to the decline in prices, container shipping stocks like Hapag Lloyd and A.P. Moeller Maersk are looking cheap. However, he maintains a Hold recommendation on these two stocks. The analyst said, “Investing in container shipping is mainly about momentum in freight rates and we think that the direction of rates and newsflow remains negative. Therefore, we retain our cautious stance on container shipping.”
Aside from Hapag Lloyd and A.P. Moeller Maersk, Wall Street analysts also maintain a Hold recommendation on the shares of ZIM and DAC due to the normalization in freight rates. Surprisingly, analysts are still optimistic about Star Bulk Carriers’ stock.
In fact, Deutsche Bank’s Amit Mehrotra expects shipping companies with solid balance sheets and less reliance on debt to outperform even in a weak market. He recommends SBLK stock as one of his top picks for 2023.
Is SBLK a Good Stock to Buy?
On TipRanks, SBLK stock has received three unanimous Buy recommendations for a Strong Buy rating consensus. Furthermore, analysts’ average price target of $29.33 implies 44.06% upside potential.
While hedge funds sold 286.4K SBLK stock last quarter, the stock has received a positive signal from retail investors holding portfolios on TipRanks. Also, SBLK stock carries an Outperform Smart Score of eight on TipRanks. (Stay abreast of the best that TipRanks’ Smart Score has to offer.)
Overall, macro weakness and the decline in freight rates will likely take a toll on shipping stocks. As for SBLK, it has consistently reduced its adjusted net debt and strengthened its balance sheet (learn more about SBLK’s financials here). Further, the company’s management remains upbeat about the dry bulk market regardless of the uncertainties and expects to benefit from the reopening of the Chinese economy.
Also, SBLK has a generous dividend payment policy and, at current levels, offers a stellar double-digit yield.