Top Ranked Momentum Stocks to Buy for April 7th

Jefferies SVP of Equity Research Randy Giveans joins Yahoo Finance’s Seana Smith and Julie La Roche on The Ticker to discuss the outlook on tanker companies, after Saudi Aramco unveiled new plans to raise its oil production capacity to 13 million barrels per day.

Top Ranked Momentum Stocks to Buy for April 2nd

Coronavirus-induced supply-chain interruptions are likely to have ailed Euronav's (EURN) first-quarter earnings.

Euronav just pulled back to a bullish trendline on the charts

Investors need to pay close attention to Euronav (EURN) stock based on the movements in the options market lately.

COVID-19 is a game-changer for every link in the transport chain, from cargo ships to trucks, trains and air freighters. Amit Mehrotra, the managing director of air freight, surface transportation and shipping at Deutsche Bank (NYSE: DB), is one of the rare professionals who covers the entire gamut.During a lengthy interview with FreightWaves on Monday, Mehrotra opined on coronavirus consequences for the world's supply chains and explained why he believes some transport companies will see stock valuations "skyrocket" in the crisis aftermath. The following is an edited version of that conversation:Container imports and globalizationFreightWaves: There have been massive swings in U.S. imports over a short period. What's your view on current volumes? What's still coming in and what's not?Mehrotra: "We're bracing for a pretty significant leg down in container imports to the U.S. We think there could be a 20%-plus decline in imports through September. What we've seen so far is a supply-chain-driven decline in volumes. I think what's coming is a second wave that is an organic-demand-driven decline in volumes."We haven't really seen the fallout yet from the financial turmoil a lot of people are finding themselves in. The bottom line is we're going to have 20%, 25%, 30% unemployment in this country. What's coming is the real ‘air pocket' in demand. It's not going to zero — people are still going to need essential items: food, beverages, personal care, dry goods. But they won't need that sweater and that new pair of shoes, and a significant chunk of the economy is retail apparel."How important are U.S. container imports to land-transport volumes, whether trucking or intermodal rail?"It's very important for land transport. It's undeniable. There is more of a lag with trucking than with intermodal; with trucking loads, there is a 65% correlation [with port imports] on a one-month lag basis. Every trucking executive will tell you that port imports are a very big absorber of capacity."Do you think this crisis will cause global supply chains to diversify away from China, or for there to be some deglobalization and nearshoring — or both?"Both. There are going to be huge implications for how freight moves globally. I was talking to the head of supply chain at one of the world's largest retailers, which serves 100 million households in the U.S. —  70% of U.S. households. And he said that 80% of their supply chain still comes from China and they don't believe it makes sense anymore."Diversification of supply chains away from China to countries like India and Vietnam will very obviously be a long-term implication of this, but I also think there will be more nearshoring. I cover Kansas City Southern (NYSE: KSU), which has a lot of exposure to Mexico, and they are seeing this trend. We were already seeing it [before coronavirus] as wage inflation rose in China."Transport stock upside ahead?How do you think the coronavirus is going to affect transport stocks in the medium term? What are the bellwethers you're looking at with regards to the shape of any recovery curve?"I want to say this very clearly: My personal belief is that I hope we find a vaccine and everybody is healthy and this is over as soon as possible. But purely in the context of assessing stocks, I don't really care about the shape of the recovery. "I think the slope of the recovery is irrelevant as long as it's positive. If it turns out that the slope of the curve is negative, equity values in the near term have a big leg to go down, but I think the bottom is in."I was probably the most bullish transportation analyst out there last year and obviously the coronavirus derailed that to some extent, but the underlying premise of my bullish view is wholly intact. My view is that what's going to happen over the next 12-18 months will be very positive for equity valuations. "What I believe you're going to have for equity valuations is a perfect storm: one, very low interest rates; two, low capital intensity because everybody's cutting CAPEX; and three, accelerating growth expectations. I know this could be considered a perverse argument but for better or worse, 2021 growth looks better today than it did three months ago, because 2020 is down in absolute terms [due to the coronavirus]."We're talking about a 20%, 25%, 30% negative GDP print in the second quarter. It's completely unprecedented. Anytime you have such a disproportionate decline in GDP, it's typically followed by a significant release in pent-up demand."As an example, Europe is maybe one month ahead of the U.S. in terms of coronavirus impact. XPO Logistics (NYSE: XPO) has said that in Europe, its volumes in the last week of April were 23% above volumes in the first week of April. If we can get that type of sequential improvement, transport equities are going to skyrocket, not necessarily because earnings expectations are going up but because people are going to capitalize earnings expectations in the midterm at much higher multiples."In general, equity values are much more levered to the multiples you place on earnings than the actual earnings themselves. If you earn $10 per share and grow earnings to $11, then all else equal, your stock price goes up 10%. But if your multiple goes from 10 times to 12 times, you see a disproportionate uplift on the entirety of your earnings."Multiples are a function of forward growth. If there is growth on the horizon, people are always willing to capitalize today's earnings at a higher multiple because of that dynamic. That's the way cyclical investing works. If you are earning $10 today and that represents a cyclical low and you expect to earn $13 at some point in the future, whether it's next year or the year after, people are willing to capitalize that $10 at a higher multiple."The opposite is also true. If you get that $13 tomorrow and people see $10 on the horizon, they're probably going to de-rate that stock [give it a lower multiple]. Solely from a financial stock analyst point of view, you don't actually want there to be a V-shaped recovery because it risks de-rating the stocks more quickly than you otherwise would. My hope is that we have a recovery and it's a slow and steady recovery so that the cycle can be more elongated."Higher risk premium for transport playersAnother issue for transport stocks, regardless of mode, involves risk. The risk of the coronavirus was not factored into the equation previously due to a failure of imagination, but we can't "unremember" it now, so it will be factored in going forward."It's such a great point and I've been thinking about this a lot. I don't think a lot of people talk about the price of risk."When you think about the valuation of a company, the cost of capital is extremely important as a reference point. When we talk about a company creating value over time, we are talking about generating returns above the cost of capital."One of the biggest components of calculating your weighted average cost of capital [WACC] is the price of risk — your equity risk premium. I think it's totally logical and fair to say that the equity risk premium has structurally risen in the post-pandemic world. That's very clear."But if your risk premium goes up 100 basis points because of coronavirus and at the same time your interest rates go down 100 basis points, that doesn't impact your cost of capital."Also, when you look at the levers that drive returns above the weighted average cost of capital, it's obviously your margins, and the CAPEX intensity dictates how much of your margins is dropped down to free cash flow. Ultimately all you're doing is discounting your free cash flow. When you look at that, you find the biggest lever to that number is growth and as I mentioned before, one of the impacts of the coronavirus is that growth expectations for next year have actually improved."What you're saying is that the outbreak will cause the equity risk premium to rise but the effect on WACC would be offset by lower interest rates and at the same time, growth prospects would increase off a lower base, so net-net, a positive?"Correct."Ocean shipping stock valuationsI'd like to bring this theoretical discussion over to concrete examples. Let's talk about ocean shipping stocks, starting with tanker stocks, because there's a lot of talk now that they're not being properly priced in the market in terms of the fundamental value of the tanker companies. In fact, you recently wrote an open letter to the management of Euronav(NYSE: EURN) addressing the stock-valuation issue."The letter I wrote definitely came from a place of some frustration, but what I was really trying to get across was the question of: Why should a shipping company be public? The answer is that the public equity markets can be a very efficient avenue for capital if the value of your stock is above net asset value [NAV; the market-adjusted value of the fleet and other assets minus debt and other liabilities]. If your stock is above your NAV, that provides you a perpetual capital base to fund accretive growth. I believe the entire 100% reason for a shipping company to be public is to manage the business so that one day its stock is valued above NAV."But what if you're a well-managed company with an incredibly responsible capital allocation and you've done everything right, like Euronav has, and the market is still treating your stock like crap? What benefit are you getting from being public? It costs $5 million to $10 million [a year] for these companies to be public. That's money going right out the door."So, you pay out dividends and what you're trying to do with dividends is decouple the stock price from NAV and value the company based on the dividend. There's no other reason to give dividends. But what if that doesn't work?"I believe Plan B is to take your debt down to zero, which brings your breakeven way down. With no debt, your breakeven is OPEX, so [for a company like Euronav] $8,000-$9,000 a day [per very large crude carrier], which means you'd be able to pay dividends on a more sustainable basis."And after all that, if a company like Euronav still doesn't get credit, I think it should just buy back the whole thing and go home [i.e., privatize]."But this all goes back to the question of whether these tanker stocks are working properly right now. Why are stocks like Euronav's trading where they are when these tanker companies are churning out piles of cash?"It's a fair question. First, I'd say we haven't really seen all the money yet. You saw some of it in the first-quarter results, but we still really haven't seen the deleveraging of the balance sheets we will over the next three to four months."I also feel investors are understandably saying that these rates are unsustainable because there's a lot of [oil] inventory being stocked and we're going to see the biggest destocking cycle of our lifetimes, during which tanker demand will go toward zero, although it won't go all the way to zero because you'll still have to move some oil."But I do think the magnitudes of the cash flows have been completely underappreciated. These companies are trading at a 20-30% discount to NAV, but that NAV is reflecting a capital structure that's probably understated by $400 million-$600 million. Because that debt is going to be paid down in the second and third quarters, these companies are not really trading at a 20-30% discount to NAV, they're trading at a 40-50% discount to NAV when you look at it from a pro forma perspective. I do think there is a real dislocation here."Looking at the overall field of U.S.-listed ocean shipping companies, there are so many of them now with extremely low valuations versus NAV, many lower than Euronav's, and with market caps that are minuscule, in most cases much lower than Euronav's."It doesn't do the industry any good [to have so many micro-cap companies listed] because all it does is fragment the capital base."We made the decision to stop covering any company with a market cap under $500 million that doesn't trade more than $5-10 million in volume per day. It's no coincidence that every stock I cover in shipping is the largest company within its segment, whether it's Euronav (in crude tankers), Scorpio Tankers (NYSE: STNG) (in product tankers) or Star Bulk (NYSE: SBLK) (in dry bulk)."I'm going to cover each vertical and the biggest guy in each vertical. I'm going to go with the one I think has a sustainable model, and that can evolve from being a company into being a platform to consolidate the sector."But consolidation — and the idea that the public ocean-shipping arena needs to evolve into one with fewer, larger players with much higher market caps — has been talked about for years. It hasn't happened yet. Do you really think it's possible to finally turn this around post-coronavirus and for public markets to become more consolidated?"To be quite honest, I would say the odds are against it. But I still think it is possible — I am still hopeful." Click for more FreightWaves/American Shipper articles by Greg Miller  See more from Benzinga * Toilet Paper Rolls And Supply Chain Roles * Uber Freight Head: API Requests For Market Pricing Up 150% * Wallbox, A Company Founded By Former Tesla Employees, Closes M Seed Round(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Today we'll evaluate Euronav NV (EBR:EURN) to determine whether it could have potential as an investment idea. In...

Top Ranked Value Stocks to Buy for March 11th

The company's earnings will grow exponentially in the coming quarters Continue reading...

One of the best investments we can make is in our own knowledge and skill set. With that in mind, this article will...

EURN earnings call for the period ending March 31, 2020.

As of late, it has definitely been a great time to be an investor Euronav

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Top Ranked Momentum Stocks to Buy for March 31st

Does Euronav NV (EURN) have what it takes to be a top stock pick for momentum investors? Let's find out.

DHT Holdings tops the list Continue reading...

Zacks.com featured highlights include: Euronav, Enova, Mueller, Hanger and 1-800-FLOWERS.COM

(Bloomberg) -- Oil tanker rates are crashing as a pact to limit global crude production begins. Don’t bet on the rout enduring.From today, crude producers in the OPEC+ alliance are cutting their collective output by a level that’s unprecedented in history -- almost 10% of global consumption. Normally, such huge curbs would have destroyed the tanker market almost as soon as they were announced a few weeks ago, as a dogfight broke out for a fast-diminishing pool of cargoes. But these aren’t normal times.The coronavirus has wiped out so much oil demand that the world will still be over-producing on a huge scale. While that means fewer cargoes, which is bad for the owners, it also means a glut that must be stashed some place. And that place is often on supertankers because space in on-land tanks has already been booked up or filled.“OPEC+ cuts would have led to rates crashing” down to about $9,000 a day, a level that just covers the ships’ running costs, said Frode Morkedal, an analyst at Clarksons Platou AS, a unit of the world’s largest shipbroker. Instead, the drop in cargoes will mostly just free up more tankers to act as storage vessels -- for which demand remains strong -- propping up freight rates.Shares of Euronav NV, Frontline Ltd. and DHT Holdings Inc., three owners whose fleets are dominated by crude carriers, all slumped earlier in the week amid concern that the supply curtailments of 9.7 million barrels a day will ultimately hurt their earnings, and also because an oil-market incentive to store diminished.Day rates to China from Saudi Arabia stood at just over $100,000 a day on Thursday, according to the Baltic Exchange. That represents a drop of more than 50% in the space of a week -- a big decline even by the volatile standards of the spot tanker business.But tanker owners, and analysts who follow them, remain confident there won’t be the kind of wipeout that normally accompanies deep oil production cuts by the Organization of Petroleum Exporting Countries and its allies. By one estimate, as much as 35 million barrels a day of demand -- more than three times the output curbs -- has been lost because buying of transport fuels has been crushed by lockdowns to stop the spread of the coronavirus.And despite becoming less favorable for tanker owners, the oil market’s forward curve is still offering deep incentives to store.At the nadir of the market rout, Brent crude for the nearest month was trading at a discount of almost $14 a barrel compared to supply in six months’ time. For a supertanker cargo of 2 million barrels, it implied a gap of $28 million, meaning potentially big profits for traders if they could book storage for less than that. Since then, the per-barrel spread has narrowed to about $7 a barrel, but that’s still $14 million for a supertanker cargo.There are now 143 million barrels of crude oil in floating storage, according the most recent data on Bloomberg from Vortexa Ltd., an oil and shipping analytics firm. That’s the highest since at least early 2016, and quite possibly an all-time record. Traders also placed well over 100 million barrels on ships during the 2008-09 recession.Euronav, which reports first-quarter earnings next week, said that demand for tankers to be deployed for floating storage remains strong.Do The Contango“Investors and the stock market are pricing in data points as they emerge so the contango spread reduces tanker share prices sell off; contango spread increases so share prices rise,” said Brian Gallagher, Euronav’s investor relations manager. “The demand for storage remains well underpinned for economic profit and increasingly for logistical reasons.”Clarksons Platou estimates that, were it not for floating storage, the hit to tanker demand from the output cuts would slash the tanker fleet’s utilization rates by 21 percentage points to 79%, and that day rates would tumble to levels of about $9,000 -- roughly what supertankers need to cover their running costs.However, the continued overproduction of oil and traders’ consequent need to keep storing barrels on ships will see that utilization rate at about 90% by late June -- a level that’s still very high by historical standards and will support day rates as high as $75,000 a day, according to Morkedal.Oil on WaterFrontline Ltd. boss Robert Hvide Macleod says ships will keep storing and the amount of oil on the water -- up 18% this year by his reckoning -- will keep on rising even when the output cuts do start to result in fewer cargoes.“Oil on water is steadily increasing,” he said. “This is likely to continue as the world produces far more oil than the world consumes, which has a positive effect on tanker rates. Simply put, we expect the oil on water increase to outpace supply cuts. Oil-on-water statistics captures storage, congestion, slow steaming and we find it a very good indicator.”Earnings for very large crude tankers, known as VLCCs, on the benchmark route from the Middle East to China have been been at high levels since early March because of a battle for market share among major crude producers at a time when demand was being crushed by Covid-19.They peaked this year at $250,000 a day on March 16, but even rates of $100,000 are very high by historical standards.“We believe the steep contango in Brent crude prices will continue due to Covid-19 demand destruction, which will further support floating storage demand and tanker rates,” said Randy Giveans, senior vice president for equity research at Jefferies LLC in Houston.(Updates contango in the second chart and ninth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy […]