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Play the Bottom in Shipping

02/17/2012 11:15 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Shipping companies have been decimated—or worse—during this global economic recession, but as some regions turn the corner and begin economic recovery, select shippers will be in great position to reward patient investors, writes Mark Skousen of High-Income Alert.

Seaspan (SSW) is one of the world’s leading charter owners of container ships. Virtually all of the company’s vessels are leased at long-term fixed-rates.

Today, Seaspan has a fleet of 72 vessels, with seven more scheduled for delivery through 2014. All seven container ships already are committed to fixed-rate time charters with durations of between ten and 12 years from delivery.

Seaspan’s customer base consists of nine of the world’s largest liner companies, including China Shipping, COSCO Container Lines, Compania Sud Americana de Vapores, Hanjin Shipping, MSC Mediterranean Shipping, and United Arab Shipping.

Seaspan will keep growing aggressively to feed the booming transoceanic trade between Asia, Europe, and North America. The company plans to keep purchasing new container ships every year for the next several years.

Growth in earnings per share is about to accelerate for two primary reasons:

  • 90% of its revenue comes from China. Even during this period of global economic weakness, millions are joining the ranks of the middle class there each year.
  • Secondly, Seaspan secures long-term contracts with customers before it orders new ships. That has allowed it to weather the economic contraction of the past few years. Seaspan also does a thorough credit analysis on customers to minimize defaults.

Then there are the numbers. Quarterly revenue—thanks to its growing fleet—rose 39% last quarter. Operating margins top 48%. And insiders own nearly a quarter of the outstanding shares.

Seaspan currently pays a 5% dividend. And this yield may double in the year ahead. Why? Because earnings could jump almost 70%, to $1.70 a share—thanks to new vessels and rising commercial activity in Asia.

In sum, this is a high quality, high-yielding play on China’s import and export markets. Expect good news when Seaspan makes its next quarterly earnings announcement on March 12.

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