Check Out Value Investor’s Edge Now
The following is a transcript for our readers who would like to follow along:
Daniel Snyder
All right. Welcome, everyone. Thanks for joining us this 12:00 p.m. Eastern hour, whether you’re on lunch, whether you’re across the pond or around the world. Thanks for tuning in and hanging out with us. Obviously, welcome to this exclusive webinar by Seeking Alpha with the one and only J Mintzmyer from Value Investor’s Edge. Let’s go ahead and kick things off from the get-go while everybody’s still joining. We actually have a little poll that we’d love everybody to go ahead and participate in, so the question today is do you currently invest in shipping stocks? Shipping stocks, meaning oil tankers, bulkers, LNG ships, anything that moves goods around the world, is this a sector or something that you have in your portfolio right now? I see all of the answers starting to trickle in. Appreciate you guys answering this for us. We’re already over 200 responses and climbing, and, of course, we are here for you, so remember, we love to have engagement. We love to have your questions asked in the chat box throughout this webinar today, so keep that in mind as we go ahead and go forward with this, so while you’re answering that, let me introduce today’s guest, who you’re gonna be hearing a lot from. If you don’t know who he is, you should know who he is, it is J Mintzmyer, chief strategist at Value Investor’s Edge, a service found here on Seeking Alpha Marketplace. Now, when it comes to J, I think the best way to sum him up, actually, is just to say he’s the king of shipping. I mean, maybe I’m a little biased on that, but the guy has a track record unlike anyone else. Let’s just dive into this, so when I say shipping, obviously, we’re talking about LNG. We’re talking about water and container ships. We’re not talking about UPS. We’re not talking about FedEx. We’re not really, you know, those are other types of shipping, but when it comes to shipping, it’s such a unique sector, and this guy has been on programs across Seeking Alpha time and time again, and he brings it every time he’s on, and I don’t have to say he brings it not just the knowledge, but the results, so I just got these results from him and the VIE team the other day, so let me go ahead and just tell you guys about this. The VIE’s model portfolios are absolutely smashing the market, and not only that, but they’ve outperformed for the last three years by 76%, 29%, and 43%. Now, year-to-date for 2022, even with the container ship prices falling, right? Even with container prices coming down, he has still managed… The models are up 52.8% versus the S&P 500, which we all know is in free fall right now, but year-to-date is down 18, 19%, and the Russell 2,000, which is down 20 to 22%, depending if you’re looking at the market right now or listening to this later. Simply put, the team and J, the guys over at Value Investor’s Edge, they really know their stuff, so definitely excited that you guys are here hanging out with us today as he goes through his presentation, and let’s go ahead and close up the poll just to see where we’re all at. Do you currently invest in shipping stocks within your portfolio? I’m gonna share the results here. 52% of people joining us right now have shipping stocks in their portfolio; 48% no. Obviously, I think it’s time for me just to be quiet. Let’s go ahead and bring J in. You’re here to meet him and see him and listen to him. J, why don’t you go ahead and jump on here screen, and I’ll let you just kind of carry it away now knowing the poll results.
J Mintzmyer
Well, yeah, thank you. Thank you so much, Daniel, and that was a way better introduction than I could ever have hoped for, so thank you for bringing the hype, and with that, I’m just excited to be here today and talk about the shipping markets and our team and our research and how we do that, so before we begin, just a really quick introduction for those of you who are not familiar with myself or Value Investor’s Edge, which is our research team. I’ve been involved in the industry as a research analyst and investor for nearly 15 years. My formal education background, I have a Bachelor’s of Science in economics from the Air Force Academy. I have a master’s in public policy from the University of Maryland, and I’m currently a PhD candidate at Harvard in the Kennedy School. I’m actually in Boston right now in the research and writing phase, so after this presentation, I’ll have some edits to a recent journal draft that I need to get back to. As far as the research investing background, as I mentioned, about 15 years, nearly 15, not quite, in the sector, I’ve been on Seeking Alpha since 2011, so 11 years, going on 12, on Seeking Alpha, 18,000 followers there. 10 million-plus page views, so very, very influential in that niche space of shipping, and then, of course, on Value Investor’s Edge, we provide private research, both to individuals, traders, investors, hedge funds, family offices, and that sort of stuff, so very, very involved in the shipping sector, and people say, “Hey, J,” you know, “why do you spend so much time “on this very niche sector, maritime shipping? “Why? “Why not do something bigger “like technology or biotech,” or, you know, “You have a good team. “Why not,” you know, “diversify?” And first of all, you know, I wanna share, you know, it’s been a personal background and interest of mine. I mean, ever since I was a kid, I used to, you know, go the airport and watch the planes take off, or I would watch the railroad cars going by my house, and there was always an interest in, you know, where is all this stuff going? You know, where are these products? What are inside those, you know, 20-foot, 40-foot boxes on the train? And so that was always a seed that was planted in my mind and something that, you know, a lot of folks found this stuff boring, and I always found it fascinating as a kid growing up. As I got more involved in the markets, as I was going through college and getting my degree in economics and starting to practice trading and investing, I realized that an individual investor doesn’t really have much of a chance in a big market like Google (GOOG) or Microsoft (MSFT), you know, big tech stocks because there’s already 50 very smart research analysts and firms covering these names, and the chance of myself finding some sort of advantage or niche in a market that large is very small, right? I have to be either very lucky or just an extreme genius, and that’s not something that, you know, I’m gonna claim or have the capacity for, so, you know, I found, you know, my passion married me up with maritime shipping, and I found these stocks that are very volatile. They don’t seem to always correlate with fundamentals. There seems to be, you know, disconnects all the time, almost anywhere you look, and there’s a lack of, at least, you know, there’s a little bit less of a lack now that we publish our research, but when I first started back in 2011 on Seeking Alpha, and then 2015 with Value Investors Edge, there’s a lack of publicly available research, and not a lot of shops were covering these firms. There was a few research analysts on Wall Street, but most of them were from smaller shops, smaller banks, and the research wasn’t widely disseminated, and, you know, the best part about shipping is it’s a cyclical market, and as I’ll tell you in a little bit, there’s several segments. There’s a lot of misnomers about shipping. It’s not just one big monolith. We cover over 50 firms and across six different segments, and the best part of it is there’s so many misconceptions, and the mainstream narrative is almost always, not always, but almost always about three to six months behind the curve, so if you’re following these stocks really closely, you can identify some of these dislocations before they happen, so that kinda leads into, you know, how we outperform because if we didn’t outperform, why waste our time focusing on a sector? And I believe the reason why we outperform is, you know, we’re not, you know, a group of super-geniuses or anything like that, but we are fully dedicated only on shipping and related energy infrastructure. We have a team of five on our platform, hopefully actually adding a new member here soon, so a team of five analysts and data. We have a coder, for instance, that builds our analytics platform, and we subscribe to all the top-tier data services and broker reports across the industry, so we see everything, and kind of as soon as it hits the wire, and some of this stuff, it’s not nonpublic, but there’s an information asymmetry ’cause if you don’t have access to some of these broker reports or some of these data services, you might have no idea what’s going. You might not realize that the freight market dynamics have changed until two or three weeks or maybe even two or three months later when you’re seeing it reported in news or you’re seeing some of the headlines if you don’t have access to some of these services, and, you know, we are very methodical. We’re very data driven. We’re very focused on risk-reward, and we call margin of safety, and what I mean by that is that we try to put ourselves into positions that if we’re correct about things, if we are ahead of the cycle and we are correct about what we believe is gonna happen, we have a potential for, I would say multibagger, 2x, 3x, 4x returns, but if we’re wrong, we have that margin of safety built in, so, you know, we might still lose a little bit of money, but it might be 20% or 15% as opposed to the upside on the times we are correct, and that’s worked out over time, and as you’ll see, you know, I wanna share a couple examples. The first one is container ships. This was from 2020. You’re probably very familiar with this story by now. It was a very hot topic last year, and, you know, the mainstream media started saying, you know, Christmas might be canceled. The White House is freaking out about this, and that was middle, that was last summer, right? Middle of 2021, but we flagged this potential to our research group and then, later, publicly in August and September of 2020, and most of the stocks that we mentioned and were part of this basket returned between 3x and 15x in one year, and yes, there was a company, Danaos Corp (DAC) which went from 5 to 75. It actually ended up peaking at 107, so it was a 20-, 22-bagger at the peak there, and so this is just kind of the snapshot, just so you know. This is the proof. This is a public article September 13th, 2020. “Midsize Containers: Time To Buy And Buy Big,” and you can see Danaos Corp last week at 5.05 and some of these other names as well, and Danaos Corp right now is close to 60, so even now, after it pulled back, it’s up 12x, and (NMM) is in the mid-20s, so that’s been a 5, 6x, so it’s been a very good total return force, but that was yesterday’s news, right? You already knew about containers. The current cycle that we’re really excited about and that we’ve been ahead of is tankers, and these stocks were in a terrible position to start the year. They were very cheap, very undervalued. Not very many people liked them, or people may have owned them back in 2020 with the whole floating storage thing, and they were just kind of on dead money, and sentiment was totally bombed out, and, you know, then we had those Russian tensions that started boiling up, and then, the official Russian invasion, which, you know, of course, caught a lot of folks by surprise, and I’m not saying we predicted that, by any means, but when the invasion happened, we knew immediately that this was going to be a huge catalyst for both crude tankers and especially product tankers. Most of the stocks in this sector are doubled or tripled this year, and International Seaways, and this was prior to Ukraine, I mean, that was kind of the fuse that really, you know, ignited things, but International Seaways was a top pick in our models. It was double 2x weighted in our value model, and you can see just sort of the, I guess, the proof here, the evidence. This is the research note, exclusive research note to our subscribers. It was, you know, five- or six-page update, but this is kind of the headlines. January 31st, 2022, is it time to buy these tankers? Market capitulation, and you can see down here at the bottom I just wanna show you there’s three picks we shared. We shared International Seaways (INSW) as a top risk-reward. I’ve mentioned that was 2x in our models. Okeanis Eco Tankers (OTCPK:OKENF) and Scorpio Tankers (STNG), and then, this is just, you know, the total return, and these were the prices, and I just, I know I’m going a little bit too much you wanna hear. The current market, not how we’ve done, but International Seaways, 179%, Okeanis, 121, and that’s we cover European stocks as well on our service. This one’s on the Oslo Exchange, and so that’s currency adjusted to U.S. dollars, and then, our top trade, the most leveraged, was Scorpio Tankers, 321%, so you get it, right? We’re ahead of the cycle. We identified the stocks early, and there’s these outsized returns, so we’re not always correct. We’re not always gonna get two-baggers, three-baggers, you know, these sorts of returns, but when we’re incorrect about something, we’re wrong about something, we usually get in so cheap that we’re buying below book. We’re buying below replacement value, and so if anything, the risk is that it’s, you know, it’s dead money for you, or you lose 15% or something, and the upside is just so skewed across these sectors. Last slide on this, I promise. I just wanna drag the point home, hopefully, one more time. I get that question all the time: “Hey, J, why do you waste your time in shipping?” And I just, I don’t understand why I get that question, but I think it’s because folks don’t realize the alpha that’s in this sector. This is seven-year performance since we launched the service. We launched in the middle of 2015, and 2016 was our first year with tracked picks and such. We’ve outperformed the industry, as you can see, significantly. Annualized return here at the bottom over seven years, and you can see the shipping industry hasn’t really done that well as an average, 6.8 versus the market kind of 8 to 12 and us at 43, and these are, you know, I hope they’re striking, you know, indifference of these big numbers, but one other chart I wanna show, and I hope it drives the point home, is that it’s not 6.8, 8.3, 12, and 43; it’s compacted, right, over seven years, so there’s an example of if it’s all theoretical, of course. Disclaimers apply, but theoretically, a $10,000 investment over 7 years, you can see the difference. The Russell, you know, 73%, S&P a little bit more than doubled the money, and these tracked trades and model portfolios would be 11x, and that’s what, you know, the models are long-only, no options, no leverage. They’re rebalanced monthly, so they’re pretty easy to track, but anyways, you get the point. Now, the part you’re all here for, the maritime market overview. I’m gonna talk high level macro for a little bit, and then, I’m gonna dive into three segments. I’m gonna share a top pick from each segment, so three total top picks, and then I wanna open things up. I want this to be interactive. I don’t wanna just talk at you for much longer. I want you to ask all the questions you have, and Daniel and I, Daniel’s gonna, you know, run in the back end. We’re gonna compile those questions, and we’re gonna take as many as we can, so if you have a question as we’re going through some of these slides, feel free to type it into the chat, and Daniel can start compiling those, and that way, we’re ready to go when we get to the end, so first off, shipping. It’s not one big monolith. It’s not just shipping. It’s actually six or more. It’s actually even more niche. We can go even further than six, but the six I wanna highlight are dry bulk, which is like iron ore and coal, grains, forestry products, things like that, anything literally in the name: dry bulk. Container ships are what was on the news last year. Those are those 20-foot, 40-foot metal boxes, things going to Amazon or Walmart. Product tankers are refined products, so gasoline, jet fuel, diesel. Sometimes they call those clean products, which is kind of funny ’cause gasoline’s not clean, but it’s just a, you know, industry term, and then, crude tankers are just oil, and those are referred to as dirty tankers, so the oil’s dirty, and the gasoline’s clean, but that’s kind of the phrase, and then, LNG is liquefied natural gas, and that has been on the news a lot recently with Europe, right? Worried about sourcing the alternative gas from Russia, cutting off the pipelines and such, and then, LPG is a really fascinating growing trade, and that’s essentially propane, liquefied petroleum gas, and that is a massively growing trade in India and China, and the U.S. is the number-one growth in exports, so very exciting trade. LPG made a lot of money in that business, but that’s one that doesn’t usually get as much coverage, so with that, I wanna make this interactive. We have one quick poll question Daniel’s gonna send out. I’ve kind of categorized these into four segments. I got the dry bulk. I got the tankers, container ships, and the LNG, and I’m just curious what are you, what segment have you heard the most about? Are you the most interested in? What do you like to learn a little bit more about? And we’ll get those poll results back here. We’ll leave it open for about 30 seconds or so, so go ahead and, you know, pick one of those. If you don’t know, that’s fine. You can either just not vote or just pick whatever sounds, you know, the most fun or whatever, but if you have a strong view, certainly, vote that in, and I’m just interested to see, you know, how this poll turns out, and hopefully, it aligns with some of the segments we’re gonna talk about today. I don’t have time, unfortunately, to talk about all six segments, but we are gonna talk about three of these, and so hopefully, we’ll get some of key areas of interest and really help answer some of your questions even before we get to the Q&A, so Daniel, whenever you’re ready to…
Daniel Snyder
Yeah I’ma give it one more second just for anybody.
J Mintzmyer
All right. That’s a good coffee break. I got my Christmas mug here.
Daniel Snyder
There you go. Go ahead and take a little sip. I love seeing all the questions in the chat as well. Everybody, please ask your questions. As J mentioned, we’re gonna get to as many as we can here once he’s done with his presentation, so I’ma go ahead and end the poll now for everyone and share the results. Seems like an overwhelming LNG and container ships.
J Mintzmyer
Okay, well, that’s fantastic. I’m really glad to see the diversity of interest. I have, today, prepared for you tankers, bulkers, and container ships, so LNG, wow, I’m really fascinated that’s of such interest. We definitely cover it heavily on Value Investor’s Edge. That one we won’t cover directly in the presentation, but I am happy to take a couple of the questions at the end on LNG, and we’ll attack the rest of those. It’s interesting, as well, to see that dry bulk is at 13% is the top segment because I don’t wanna show my cards too much on Value Investor’s Edge because that wouldn’t be fair, right, to our members, but dry bulk might be one of those segments that we think might be very interesting next year, so with that, back to the segments here, and what I love about this, and I mentioned it earlier, but having six different segments and not just a monolith is great. It makes shipping so much better than almost any other thing we cover or follow in the markets, anything. I mean, better than energy, better than biotech, better than technology because there’s almost always a segment that’s hot, and there’s almost always a segment that’s just cold. It’s an avoid. It’s a value trap. There’s something wrong with it, and there’s almost always a segment that is just heating up. It’s just about to break out, and not always, I mean, for example, March of 2020 with Covid, everything went down. There’s been a couple times when, there’s a few times when everything goes up, but traditionally, there’s different segments, right? So right now, tankers are the place to be, right? Tankers are the money-makers, but what are the money-makers next year, right? Last year, it was container ships, so that’s the idea, and there’s almost always a long, any market, I mean, it was the depths of Covid, May or June of 2020, and everyone was struggling, and there were some amazing picks, for example, in shipping. Always a couple segments, a couple ideas that just looked great, so very high level before we get into the specific segments. The supply side, and shipping is a commodity sector the end of the day, so it’s all about supply and demand, and the supply side of shipping is the strongest we have seen in modern history, and that’s not just my, you know, seven years at VIE or 15 years kind of following the industry. That is since, I mean, modern 1970s, 1980s. I mean, this is the strongest supply side. It’s the lowest order book we’ve seen in the 21st century, and it’s almost the lowest of all time record. If it’s not, it’s off by, like, a percent. We have significant environmental regulations that start in just two weeks. It’s called EEXI 2023, and there’s another one called CII, Carbon Intensity Index, and those start kicking in in just 16 days. They’re very exciting, and those are a five-year phase-in, and each year those regulations get more and more stringent, and they’re gonna force out some of this older tonnage, and as you’ll see in a little bit as I have some slides, the fleet, global fleet’s get older and older. It’s one of the oldest it’s ever been, and the future order book is one of the smallest it’s ever been. Isn’t that amazing? I mean, you got one of the fleet is getting older. There’s nothing new coming in. All these regulations are gonna force out the old tonnage. I’ve never seen, and the supply side is fantastic, and that is for tankers and bulkers. Supply side is beautiful. Demand side’s mixed. Crude tankers have been very volatile this year, and the product tankers have really been the strong, the breadwinners, and they remain the breadwinners today as we talk. Dry bulk has been very volatile, and it’s so dependent on China, and China was really holding onto that zero-Covid policy all this year, I mean, without, I mean, the rest of the world, I don’t wanna say moved on. That’s not the right verbiage, but the rest of the world kind of… We had our vaccines. We moved on, and China just was stuck in the past. Their vaccines were ineffective, and I don’t wanna get too far. That’s my research specialty with my PhD, but, you know, I don’t wanna get too far in the weeds, but needless to say, China was behind the curve on that, and that has held everything back in ’22. Container ships. The lease rates are dropping. The freight markets. What it costs to ship a box from China to L.A. plummeted. I mean, those markets are horrible now. It’s complete reversal of what we had last year. A lot of the liners are, if they’re not losing money now, they’re close to losing money, so demand side is mixed. It’s all over the place, but the supply side, especially in tankers and bulkers, is what I really wanna highlight, so with that, the moment you’ve been waiting for, the segment overviews and top picks for of them, so starting off with dry bulk. There’s a supply shortage and China reopening. It has the lowest order book in modern history, as I mentioned, and China is the primary driver, so 50% of the major bulks. What I mean by that: iron ore, coal, major bulks, and minor bulks would be like grains or forestry products, wood chips, or something like that, so of the major bulks, iron and coal, China has over 50% of that global ton-mile demand, and that’s why we’re excited because China is finally reopening. They’ve shifted to what they call a dynamic of zero policy. If you’re a China watcher, either like for academics like myself or you just follow on Twitter and all the news, there has been dozens of policy changes in the last two weeks, three weeks, health stations getting dismantled, you know, these health checks and the metro systems going away. They stopped reporting key Covid stats a couple days ago, so China is really reopening, and the market has just yawned, burped, doesn’t believe it. It’s like the boy who cried wolf or something. This is huge, significant news, and the market just has not reacted to it yet. I think they just don’t believe it, but this is big for dry bulk. Longer term, and this is longer term, and it’s totally counterintuitive. Future climate initiatives, ESG projects, wind farms, solar panels, all those sorts of things, electric vehicles, that is very bullish for dry bulk, and that’s totally counterintuitive, right? The ships that carry grainy iron ore and coal are going to benefit. Really, J? And that’s because those mid-size minor bulks, the smaller cargoes are all sorts of things like iron ore. We talked about iron ore already, but copper and cement and bauxite and all these inputs to all these future infrastructure projects, so they’re gonna have to be developed, so longer term, dry bulk has a strong future. Maybe a little bit less in coal, but all those other products are gonna be moving around the world increasing supply in the next couple decades, so our top pick in dry bulk, and keep in mind we cover over 50 firms, and keep in mind this is a public presentation. It’s free for everybody, and we’re providing quality research, so when I provide top picks on here, I provide a solid name that has good governance. It’s nothing you gotta worry about, you know, shenanigans or anything like that. Balance sheets are clean. Strong companies. I do have a long position. I’m disclosing that as well, so you can think of that either way, but if nothing else, I’m invested alongside everyone here, but what I’m getting at is there are more leveraged picks in these sectors. There are more picks that are gonna return. You know, if things go well, they might return more than these, but this is a public presentation. We’re kind of throwing, you know, softball pitches down the middle. Our top pick in dry bulk is Star Bulk Carriers (SBLK). They have excellent corporate governance. They have a strong shareholder returns policy of essentially paying out 100% of free cash flow as dividends. I have known their management team now for almost a decade. Hamish Norton is their president. He’s actually just a super-brilliant guy, a PhD in physics, really knows what he’s doing, and then, he has a very qualified team behind him, so Star Bulk Carriers is our top pick in dry bulk, and I talked about that supply. I talked about how great it looked. I just wanna show you the order book here, and this is we do these charts quarterly, so that’s why it says October 4th, but not a lot has changed in the last two months. We publish an exclusive report to our members every quarter with all the latest stats and commentary related, and this shows the forward supply, the ships that are gonna hit the water, so you can see ’22 and ’23 are very small compared to the peaks we saw a decade ago, and ’24 is significantly smaller. ’25 is nonexistent, and by the way, if you haven’t ordered a ship yet, you’re not gonna get it until 2025. The 2024 order book is completely closed, so these numbers, they’re not gonna grow. If they grow, it’ll be like five ships, so any future tonnage is coming out this way. You can see it’s very small compared to the kind of the normalized average here, and this might put things in better perspective. This is the dry bulk orders and demolitions by each year. You can see what happened earlier in 2013, ’14, ’15. This was a private equity backed sort of ecodesign tonnage craze that happened, and we had, you can see we had about 2,200 vessels. They were ordered in three years, 2,200 ships, and if you look at the last couple years here, you’re looking at like six or 700, so only 1/3 or less of the tonnage was ordered, and if you go back even further, this chart doesn’t, but if you go back even further to, you know, 2007, 2008, around the global financial crisis, you’ll see numbers that are even bigger than this, so the fleet is aging. The average fleet is the oldest we’ve ever seen in capesize dry bulkers and certain tankers, so we’re very, very excited about that. This is a dry bulk index. This is kind of what it looks like over the last year. This chart’s from about a week ago. It’s a very seasonal index. It almost always falls into the spring, kind of goes up into the summer, and then, usually there’s kind of a lull in, like, July or August. Usually, now, in a good market, there’s a nice, strong rally into the end of the year, into December, so in a good market, this chart would’ve look kind of like that, not like this, and this is all China, going back, falling on its face, import demand dropped 10% year over year into November. Finally, China’s abandoned those policies, and we think they’re gonna get back to more normal imports next year. However, I show you this because here’s a five-year chart, and this shows the bottoming every single year, February and March, seasonal market, so I just, I show that because people, I don’t, you know, people in two months be like, “Hey, J, the dry bulk rates are weaker.” Yeah, they probably will be. They usually seasonally are, but you wanna get in ahead of that ’cause this is kind of the inflection point, and usually in April, March or April is when things start heating up, five for five. The last 15 years, we’ve looked at 14 out of 15 years have generally followed this similar seasonal pattern, so I think we’re getting into the accumulation phase now and get excited for March, April, May is kind of, so set yourself a six-month reminder. Say, “Check on dry bulk. “See if Mintzmyer was right on now,” so tankers. There’s a significant market dislocation on the supply side, and these Russian sanctions have been a huge catalyst, and we’ve been talking about these now for, wow, 6, 7, 8 months now, but the market’s finally realizing it. These stocks have finally moved, so let’s set the table first. Why were they so cheap? And that is because of just the decimation of COVID-19. Tankers rely on the transport. This should be obvious, but they rely on the transport of oil from exporters, like OPEC regions, like Middle East Gulf, or the U.S. Gulf to the imports. Well, when you have something Covid, demand falls off a cliff, and OPEC cuts off their supply. Tankers are squeezed at both ends. This is a horrible market for tankers for a couple years, but we had demand recovery in 2022. We had OPEC increasing their exports. The United States was selling off the Strategic Petroleum Reserve, so we had this massive ton-mile growth. Oh, furthermore, we had the Russian invasion of Ukraine and the subsequent sanctions. Before all that happened, we had the oldest fleet balance in history, very small order book, just like dry bulk, and big regulations that start in just 16 days, so our top pick in tankers. This one’s a little bit more wild. This one’s a little bit more of a trade, but it’s a solid company. Good balance sheet, though they don’t pay a big dividend yet, but they are share repurchasing. They just provided an update yesterday showing that they were still currently repurchasing shares, and this is Scorpio Tankers (STNG). This one is not as cheap, so I say the margin of safety is not quite as great as the other two picks, but this is more of you’ve been following tankers. You wanna know the hot play. You wanna know the name to follow. That is Scorpio Tankers. I wanna show these two slides, and these are, these were actually shared by Euronav, which is a major tanker company, and they shared these way back in March, and we’ve been, I mean, we’ve been talking about this since, like, February, really, since the invasion, but the sanctions, and the sanctions are just starting to happen now, right? This was March. This was nine months ago, but now the sanctions are just coming on. They come on for crude. The price cap and the bans came on about two weeks ago, and the product ban starts in February, so two very big catalysts that are ongoing. This shows the Russian oil historically, so you have, you know, the pipeline, the ports that are sending about 2 million barrels via the ocean, and you have the pipeline, which is sending 800,000 barrels per day to Europe. Well, if you add sanctions to that, all of a sudden, all that oceangoing oil, which was just a hop, skip, and a jump, right, from the Baltic ports to, you know, say, the Netherlands or the UK or wherever, France, you know, hop, skip, and a jump. Now it has to go all the way around, either during the summer, they can go this way or during the winter, they have to go all the way through the Black Sea and take that all the way down to India or China, so the ton-miles from that shift are more than triple ’cause it was just going to your neighbor versus going all the way around, so huge rerouting going on. Secondly, Europe used to buy their oil from their next-door neighbor, right, from Russia, but now they have to buy it from the United States. They have to get it from Venezuela. They have to get it from Nigeria, all these different places, and so you’re getting kind of two different growths in ton-miles at the same time, and this is just crude. I’m just showing the illustration of the crude charts. The product tanker sort of impacts and dislocations are even more significant, and so that’s Scorpio Tankers’s product, and this is crude, but the two markets correlate pretty much on those two, so I showed you these same charts for dry bulk, and here’s the ones for VLCCs. You can see the order book. It was 4.1%. That is the smallest order book in recorded modern history, I mean, as long as VLCCs have existed, so, you know, 40 years or so, but 4.1. It’s never been lower than that, and you could see 2022 is kind of, you know, kind of an average delivery year, but 2023, and keep in mind it’s December 15th, guys, so this is basically over. 2023 has 20 ships, which is the third lowest in 20 years. We had one of 18, had one of 20 in 2015, and we have 20 here, and guys, by the way, 2016, fantastic tanker market, so, you know, and 2024, two ships, and just like I said with bulkers, if you haven’t ordered one yet, you’re not getting it till 2025. This would be, I mean, it’s just unprecedented. I can’t even believe. Two ships the entire year. It’s just never, it’s unbelievable, and the fleet is the oldest it has ever been on balance. VLCCs normally have a lifespan of about 21, 22 years. The average fleet is right now is about 11, almost delay is like 10 1/2 years, the oldest it’s ever been, the smallest order book we’ve ever seen, and major environmental regulations coming up, so if that doesn’t excite you on the supply side, I don’t know what will. These are the orders and demolitions by year. 2015, 72 ships ordered. You need about 35, I would say 35 to 40 VLCCs ordered every year just to keep the market flat. If you think about the global fleets, around 800, 21, 22 years, you need 35 to 40 just to keep the global fleet flat with 0% ton-mile growth. Keep in mind that the sanctions rerouting is causing ton-miles to go up. The environmental regulations are going to knock out some of that older tonnage, and we have two VLCCs ordered in 2022. It’s just unbelievable, and there’s reasons for that. We can get into that more in the Q&A, but there are reasons for that. Folks are scared. They don’t know what the new ESG regulations are gonna be. They don’t know what the new propulsion. Is it gonna be ammonia? Is it gonna be hydrogen? Is it gonna be LNG dual fuel? So there’s reasons that owners and investors are not buying these things ’cause they don’t know, you know? ‘Cause you buy a VLCC, you’re making a 21-, 22-year capital commitment, and you don’t get it till 2025, so think. 2025 plus 20 plus 21 is 2046. If I came to you and said, “Hey, you wanna invest money “for an oil tanker that’s gonna run to 2046?” And you’d think I was crazy, right? So there’s reasons for this dislocation, but as current investors that invest in on-the-water tonnage, I believe there’s an opportunity to exploit some of this disconnect. Finally, container ships. They were the story last year, right? And it was kind of, the freight market was kind of boom-and-bust. That’s, you know, spot freight. How much are you gonna pay to move CONEX in a box from China to L.A. or Chicago? That’s kind of a boom-and-bust market, but what we really like are the container ship owners, the ones that own the actual ships, and that’s because they lease these. It’s like equipment lease. They lease the ships to the major firms like Maersk, CMA CGM, Hapag-Lloyd. They lease them for three years, four years, five years, and during the huge buildup of last year, there was such a dislocation, such a crunch that the liners were getting these ships for three years, four years, five years at record highs, and now we’re past the peak of the cycle, right? And I’ll show a chart that shows the rates have come off, and folks in the market have just sold the stocks indiscriminately, right? They’ve sold everything. There’s stocks like ZIM that have, you know, heavily exposed to freight rates. They’ve crashed. There’s other stocks that they’re not gonna, they’ve already locked in their whole fleet. They’ve already got ’23, ’24, ’25, ’26. Some of these companies have locked up ships as far as 2028 and 2029, so their backlog’s already done. It doesn’t really matter what the current spot rate is, and yet some of these stocks have sold off indiscriminately, and a couple firms we follow, and I wanna share one with you, trade at a significant discount to the contracted EBITDA, so how much they’re gonna earn from their ship and the fleet demolition alone, so what that means is if you just ran out the contract, and you just demolished the fleet and sent it to the scrapyard and didn’t operate it for a single day, even a new ship, even some of these companies have ships that are only eight or nine years old, and they’re built to do 30 years of service, and I’m saying no. There’s three more years on the contract, and then you demolish it, and some of these firms trade at significant discounts to what I believe is, like, a draconian example. That’s like the bare case. It’s like the ship, the whole fleet’s worthless, right? You just run through the backlog and scrap it, and they’re trading cheaper than that, and so one company I wanna follow or mention, you’ve probably heard of it, is Danaos Corp, DAC, and if you hadn’t heard of it before today, you might have heard me mention we bought that thing at five and went all the way up to 107, right? So that was a 21-, 22-bagger. You might say, “Oh my gosh, J, “well, it’s 60, you know, 55, 60 today, you know? “It’s up, you know, “11 times or whatever since you bought it. “Why would you like it now if the party’s kind of over?” And when you look at a share price, keep in mind that’s just the equity value. What that doesn’t show you is how the balance sheet has transformed. When Danaos Corp was 5.05, its balance sheet was an absolute wreck. It was borderline bankrupt. They completely paid off all of their legacy high yield or high expensive debt. They now carry in a massive cash liquidity balance. They have a backlog that is about three times their market cap, so just, or about 2 1/2 times their market cap, so just a very, very transformed firm. You look at them on an enterprise value basis, which is the proper way to value a company, it’s like when you value a house, right? If you buy a house for $500,000, you say, “I bought a $500,000 house,” but you maybe only put $100,000 down, right? So you have 20% down or whatever, so that’s the way you value a business, enterprise value, Danaos Corp today is cheaper on an enterprise value basis than it was when it was $5 a share, and it’s hard to believe, but it’s true, so as I mentioned, the freight rates, roundtrip, it’s nearly complete. We’re back to kind of mid-to-late 2020 levels, and it is just a plummet, and these are spot rates. This is just, “Hey, I wanna ship my cargo “from China to U.S. today. “How much am I paying?” These are the leasing rates. You say, “Well, J, you mentioned the leasing companies. “Their rates have fallen too.” Yes, they have, but these are kind of irrelevant because the companies, especially the companies we follow, have fixed the entire fleet, and then, some of them were admittedly fixed down here, but they fixed the entire fleet right here, so these rates don’t really matter until 2024, ’25, ’26, so these companies are just an amazing position, and they have fallen almost as bad as the companies that are doing this, so which market would you rather have? 100% exposure to this? Or 100% locked in for four years on this? And that’s the difference here, so review of the top picks, and we’re getting right into the Q&A. I went a little bit longer than I wanted to, but hopefully, the information was useful for you guys, so review of top picks. In dry bulk, the supply shortage and China reopening, Star Bulk Carriers, SBLK. Tankers, we have dislocation and sanction crunch, STNG, and then, container ships, fixed cash flow at that massive discount is Danaos Corp, DAC. I am long. Two outta three of these fish I’m long, Star Bulk and DAC. I’m not currently long Scorpio. I took profits recently. It had a very nice run. It is in our model portfolios, though, so I wanna make those disclosures very clear that I am long Star Bulk and DAC. What you can do right now as well if you want, set a six-month or a 12-month reminder with these three stocks. Hold me accountable. If these are not doing really well a year from now, feel free to get those rotten tomatoes out, but based on our research and based on our track record, our models, and our approach to markets, I have very strong confidence, especially in Star Bulk and Danaos, and then, of course, Scorpio, I mentioned it’s a trade, right? So we’re following the rates. We’re following the trends. As long as the rates and trends are up, we like Scorpio, so with that, I wanna turn it over to Q&A. I do want folks to know we have a free trial available for the next week. It’s to our research platform. Now, there’s a link that you can just use mintzmyer.com, and it’ll take you directly to our landing page on Seeking Alpha, and there’s a two-week free trial available for everybody, and Daniel, if you wanna start to moderate some of the questions, I’m happy to get into those.
Daniel Snyder
Man, yeah, let’s get into it, but, of course, thanks for that awesome presentation, J. I mean, it’s only a matter of time till we can call you the Doctor of the Seas or something like that. I don’t know. Maybe I’m just… But incredible insights. Really appreciate it, and before we get into Q&A, just for, as you just mentioned, just wanna remind everybody that there is a two-week free trial for your service, which you don’t usually do, so at least you can get in, start talking to you and the team, seeing what the research is all about. I would encourage everybody to go and lock in that incredible value before prices go up in January, so go check it out. I’ll have my team continuously drop the link in the chat for everybody that is joining us here live. Now, without further ado, J, there’s a lot of questions to get through, so we’re gonna get through as many as we can, but the chat has been blowing up. A lot of people asking a lot of great questions, but let’s start off with this one, so going back to how much of your past performance was influenced by hypergrowth like last year, right? Supply chain issues, everything else, the macro environment. How is your strategy suited for the likely upcoming recessionary environment?
J Mintzmyer
Yeah, that’s a great question. I guess it’s kind of the elephant in the room, if you will. One point that I would make is that shipping has actually not had a super-strong market for the last decade. The last year, yes, it’s undeniable. Shipping’s had a great year. In fact, if we flip back, let’s do this real quick. Let’s flip back to, oh, man I got a lotta slides here. I wanna flip. Yeah, let’s flip back this chart here, so over the last two years, the person who asked that question’s absolutely correct. We had a very strong tailwind across the entire industry, shipping up 60%, shipping up 59.5. If you go back to ’16, ’17, ’18, and a little bit in ’19, you had a much more nuanced market. You had a oversupply in shipping, and if shipping is oversupplied, it’s a commodity market, and if it is oversupplied, it doesn’t matter how much the Fed is pumping money into the market. It doesn’t matter how high global growth is. If you have too many ships and not enough cargoes, you are not making money in shipping, and you can see that in 2016, negative 3 1/2. 2017, 6 1/2 all year. ’18 was a money loser, 26.9. 2019, uh, decent return there, but these three years, not great. Value Investor’s Edge returned 23.7 versus 3 1/2, 65.4 versus 6. That is a massive outperformance I’m really proud of. 2018, 0.9, so basically flat, but the market was down 27, and the entire market was down, right? So that’s another year. You might not, you might think it’s funny to be proud of a 0.9% return, but when you look at the comps, right? And then, 2019 was when things started warming up. Things started warming up in 2019, and we outperformed by 2x. 2020 was tough, but 30% outperformance of shipping. So the point of this chart is that shipping has not been in a continual bull cycle for seven years. It’s been two years, and, you know, we have done pretty well on those two years, you can see with the numbers here, but the other flip side of that coin is it does not matter if, you know, if the global economy’s slowing down a little bit, and the Fed is pulling out liquidity to try to fight inflation, if there is a supply shortage in a market, if there’s not enough tankers, if there’s not enough bulkers, the rates will be very strong. It’s just commodity sector supply and demand, so it’s a global growth certainly matters, but I think, first of all, I think we’ve demonstrated that we can perform, outperform when the markets aren’t fantastic, and secondly, I just wanna drive home the point that shipping supply and demand does not always correlate to, like, S&P 500 levels or Fed funds or whatever.
Daniel Snyder
Gotcha. Thanks for the insights there. Also, just wanna let everybody know there’s a lot of questions that have been coming in. There will be a replay of this as well sent out to all of you, so you do have the access to replay afterwards. Now, you mentioned rotten tomatoes getting thrown at you. I think people might throw them at me if I don’t ask you about (ZIM). I mean, the amount of questions I’ve seen about this company has been blowing up the majority of the chat, if you like, people asking about cutting losses. How’s the position of the company? What should they do? I mean, do you mind sharing your initial thoughts on ZIM and maybe anything else that you think you’d be down to share with every-
J Mintzmyer
No, absolutely, Daniel, and, you know, I would be shocked if there wasn’t good questions on ZIM, and that’s a good one. This is ZIM’s business model, right here in this chart. ZIM leases and ships, they’re kind of asset light, right? So they lease in their ships. They build up their business, and then they attack this market, and they have a little bit of contract coverage, but by March, April of next year, it’s pretty much 100% spot right now. It’s about 70%, 75% spot mix, so this is ZIM’s revenues, and so ZIM makes this on their revenues. They pay for their expenses, and whatever’s left over is profit, so you can see how an investment in ZIM, from when we made it, which was February of 2021 with the IPO, which was right here where my mouse is, how that could have been a life-changing investment, and it was in ZIM. However, if you are buying ZIM at here, and some of this has already happened and kind of trailing, and now you’re going this way, I don’t think the price movement, I think the price movement in ZIM makes 100% sense in terms of it’s way down from where it was, and it was way up, way up from here and way down from there. I think that makes sense. I think it’s overdone. I am actually personally long ZIM today, so I think it’s way overdone, and I’ll tell you why. The stock trades today, I wanna actually pull up a chart so I don’t, I haven’t looked at this in about two hours getting ready for this presentation. Yeah, it’s like 17, 17.82, so it’s 18 bucks. ZIM, right now, is about $40 estimated. That’s my estimate of net cash on their balance sheet, so if ZIM trades at $18, that is the market telling you that the future value of their entire company and their entire business is negative $22 per share, which is about 2.5 billion is what the market is saying, the future value of the business for ’23, ’24, ’25, all the way into perpetuity of the company, 2030, 2040, however you wanna build your discount model. I think that’s ridiculous. I think that’s way overdone. I think ZIM is probably gonna lose about 10, $15 on the down cycle between ’23 and ’24, maybe a little bit in ’25. I think they’re gonna lose probably 10 to $15, so if you take 40, and you take 10 to 15 off, you get 25 to 30, right? But then, when you get to ’25, ’26, ’27, there’s a normalized valuation of the company, right? Because rates are gonna be normalized. Markets gonna be rebalanced. All these environmental regulations are gonna kick in, and so there’s still a residual value of the company. It’s not worthless, right? They’re gonna make, you know, 3, 4, $5 a year, and it’s gonna have a multiple, you know, 8, 9, 10x, so that company’s worth 30, 40 bucks in 2025, so you have to add those together. You say, “Well, the company’s worth 40 bucks in 2025,” or let’s say 30. 30 bucks, a nice round number, 30 bucks in 2025. The company’s got $40 in cash today. They’re gonna lose 10 to 15. Hell, let’s say they’re gonna lose 20, so you got 40 plus 20 plus 30, so you get to evaluation quite easily of 40 to $50 per share for ZIM, and so our current fair value estimate on Value Investor’s Edge, it’s not fair to my members, even every single one, but since ZIM is so popular, it deserves it, is $42 a share is actually what we believe ZIM is worth, and it might seem crazy to you, but there’s $40 in that cash on the balance sheet. We believe that the rates are pretty bad, and the price, the general trajectory of ZIM going down makes sense, and I’m not gonna say that’s wrong, but it’s way overdone. I mean, just so many people are invested in this company, I believe, that just didn’t quite understand the business model or didn’t quite understand how, you know, dynamic the earnings were gonna be, and so I guess people thought there was gonna be a $17 dividend every year or something, when it’s kind of like, you know, a one-time event here, so yeah, there’s a dislocation in the market. As far as, like, should you cut your losses, or should you get out or stuff like, I don’t provide direct investment advice. I don’t think that’s, you know, ethical or moral of me to do. I provide the research. I tell you how I’m investing, and then, people make their own decisions, so I’ll tell you right now I am long ZIM personally as a trade. I started getting back into ZIM in November, which is about 22, $23. Keep in mind they pay a $3 dividend, so that’s kind of like getting into ZIM at like 20, 21, and I have a position. I just added some. I have a position in January calls as well, so a leverage is kind of, it’s kind of a leveraged trade position. I’m not married to it. There’s a reason, guys, I said Danaos Corp, DAC, and I’ve been saying that all summer. The lessors, the owners, are the far better risk-reward place to be, so long answer, hopefully, that’s helpful, and hopefully that explains some of the framework and how we look at these companies.
Daniel Snyder
I mean, I think you covered it really well there, so appreciate you doing that. I wanna go back, so you were breaking down a little bit about oil tankers and Russia and how they’re having to reroute their oil with the oil bans and everything else, so there was a question that came in asking if you think the ban on the tanker services of Russian oil above the $60 limit is actually going to help or hurt the tanker stocks? What’s the thought there?
J Mintzmyer
Yeah, you know, it’s a good question, and this oil price cap sort of mechanism has never been experimented with on this sort of scale, right? You think historically the sort of sanctions we’ve done. We’ve tried to ban Iran, right, from selling oil on the global market. They still sold it to China, but it was a very kind of in, you know, a little bit to India, a lot to China is one country. Most of the world agreed on it. There’s been embargoes against North Korea. You can go back to the 1940s. I actually wrote a term paper on when this, the embargo of Japanese oil before World War II, but small, I mean, a tiny impact to the global market compared to what we’re seeing today. I put all those caveats out there because I’m not exactly sure how well this thing’s gonna go over. I also study sanctions in my research, and they’re not particularly effective at changing target behavior. They’re very difficult to enforce, especially on a global basis. That’s why, you know, China and India aren’t really involved in this at all. In fact, India, who, you know, generally is a friend to the United States, is gonna buy Russian oil ’cause they need it, right? And so I guess I might not be answering your question directly, but I guess what I’m saying is I’m very skeptical on that oil price cap really having much teeth or really working. I think the only reason it’s sort of maybe kind of working now is because oil prices have fallen a lot, and the cap is kind of like, the cap is kind of close to what the market is. If oil is 100 bucks, and the oil cap is 60, just… I hate to make definitive statements, but I would wager quite heavily that it would be pretty ineffective.
Daniel Snyder
That sounds a little bit like it’s more of still in OPEC’s court, right?
J Mintzmyer
Yeah, I mean, look, the story on tankers is really not so much about the oil cap at all. It’s about the rerouting of the oil, and as long as China and India are buying Russian oil, that oil is gonna move, and it’s gonna move way further. That’s the story, so if you’re asking me, “J, like, what’s the concern “about the oil tanker trade, like, stopping working?” A massive global recession would probably do the trick. That would not be good for tankers. The second thing that would not be good is if China and India suddenly said, like, “We’re also gonna embargo Russia oil.” That wouldn’t be good because they’d have to get it from OPEC and then, the ton-miles there are shorter, so those are the two things to watch out for. I don’t think the cap, the cap, if anything, is just gonna cause a lot of mess.
Daniel Snyder
Gotcha, so we gotta bring this up as well, so a lot of people have been asking about the pricing point of your service, so wanted to see, I mean, obviously, some retail investors here are, like, a little shocked, but it’s, like, it’s a lot of great research, so maybe you just wanna take a second and share about the newsletter side of things that you have going on with Value Investors’ Edge as well.
J Mintzmyer
Yeah, sure thing, Daniel, and thank you to everyone who’s joined in today to listen. Yeah, the pricing of our services, it’s geared towards, you know, larger investors, family offices, hedge funds. We also do consulting packages, so, you know, it depends. I can’t say what is the right amount of money to be investing or trading for our service to make sense, but I would generally say, you know, probably somewhere, you know, 50,000, 100,000 sort of investment in shipping would make sense, I think. I think if someone with 5,000 in shipping or 10,000 shipping, the price point’s probably a little bit too high, and that’s just, that we’ve built a research platform for serious investors and traders, and that’s kind of just what it is. However, I don’t wanna just say there’s not a product, so back in May, we launched a very, it’s sort of a basic, it’s a newsletter, and there’s a couple picks attached, and it’s called Value Investor’s Edge Lite, and so that one is only, it’s $300 a year, so it’s significantly discounted from Value Investor’s Edge, and I think right now there’s kind of like a holiday end-of-year special where the first year is a little cheaper, so the first year’s actually only 199 for the newsletter, but keep in mind that’s a newsletter, so it’s kind of a one-way flow. I’ll publish occasional research. I will share occasional picks, but it’s not two-way dynamic, right? There’s no chat room. There’s no interaction, and that’s sort of just, you know, you get what you pay for, right? So Value Investor’s Edge is our premium product, and that’s what the model portfolio is and the tracking, all that sorts of stuff, but there definitely is another option. There was a just a huge, like, demand for that in May and earlier this year, so we’re happy to launch that, but just be aware, guys, it’s a newsletter, right? Right, if you’re paying, you know, a big discount for something, it’s not the full community. It’s not the full models. It’s not the full… You’re not gonna get the full access to the team of five and all that sort of thing.
Daniel Snyder
Plus, all the research that you guys source and analyze and the chat functionality of asking questions just like we’re doing now, I mean, it really is worth it, so going back to the shipping side of things, though, we had a great question come in saying, “What public metrics do you watch? “And can you comment on the recent turn “in the Baltic Dry Futures index?”
J Mintzmyer
Yeah, so absolutely, so the dry bulk market has a futures curve. It’s kind of like oil has a futures curve, but in dry bulk, they’re called freight forwarding agreements, FFAs. They’re pretty thinly traded, so the only, only the first couple quarters, maybe the next calendar year has a decent amount of liquidity, but when China transitioned, and this is something I’m pretty happy about our call so far. It hasn’t, you know, it’s only been a couple weeks, so it hasn’t panned out yet, but when China started transitioning away from zero-Covid into dynamic zero, and Xi Jinping and the CCP made that move, my first gut instinct was, like, this is very good for dry bulk, and so the pushback was, well, the FFA markets are bad. They’re really weak, and over the last two weeks, we’ve seen a significant uptick in the calendar year ’23 as well as the quarter three, quarter two FFAs across the board for capesizes and midsize bulk, so what that’s saying is that the futures curve on rates, it’s not, like, skyrocketing, guys, like, it’s 25, 30% up, but the futures curve on rates is sort of agreeing with our gut reaction that this was good for the dry bulk. I think the FFA curve is still way too low. I’m very bullish on the potential, and I always say I’m bullish on the potential because we don’t know for 100% how things are gonna turn out, but I think with a name like Star Bulk Carriers, it’s one of those names where, like, if things turn out really well and then, the supply, of course, the supply can’t move, so we know that’s gonna be constrained. If China opens up and the demand is strong, a company like Star Bulk Carriers is gonna do really well. ‘Course, we have other names that are more levered, that are more niche, and more… You really need to pay attention if you buy those names ’cause they’re more trades. Star Bunk’s a very quality firm, but if the market doesn’t work out, Star Bulk kind of already priced for that, so I don’t want, you know, promise and use exact percentages, but I would say it’s a situation where the upside is 50, 100% or more, and the downside is, you know, maybe 20%, and the FFAs, I think, are reflecting that slight undercurrent of optimism that is starting to come out from China.
Daniel Snyder
Awesome, all right, so we have a quite a few questions coming in on some merger news in the sector, so wanna see if you might be able to share some thoughts on this. They say, “How do you think the Euronav Frontline merger “will play out considering today’s Saverys Fredriksen news? “How does the Euro FRO merger work out “with up to 450 million shares outstanding “after the combination?”
J Mintzmyer
Yeah, no, that’s the hot topic of the industry. In fact, I ran a Twitter poll yesterday. Let me see if I can bring it up real quick as we’re chatting here. I ran a Twitter poll yesterday, and I said, “Hey, what do you guys think?” It was kind of tongue-in-cheek, but, “Hey, do you guys want this merger “to keep going as it is? “Or should Frontline, FRO…” By the way, guys, I’m long Frontline, and just a disclosure there. I am not long Euronav. I would not want to be long Euronav. I would wanna be very long Frontline right here if I was picking one of the two, but I hope I’ve disclosed that I’m talking my own book. Try and see if I can pull the poll up. If I can’t, then I won’t waste your time. Oh, yeah, I asked folks, and I got 563 votes on Twitter. So it’s not a scientific sample, but I said, “Hey, is Frontline alone “the way to go here, guys? “Or should we push the merged firm, even with this drama?” 85% of the votes said Frontline alone is better off here, so quick background. What’s going on here is Euronav and Frontline are two tanker giant companies. They’re trying to merge. One of the big legacy kind of founders and owners of Euronav doesn’t really believe in the tanker market long-term, wants to merge it into, like, a green tech sort of green shipping firm, and Frontline is very legacy. John Fredriksen, tankers to its core, so it’s just a different kind of vision of the future. I don’t wanna say much more that would, that you’re gonna quote me on or record me on that’ll get me in trouble ’cause there’s some drama here. There’s some sides to pick. There’s some… This is a good topic for the bar, guys, so to the bar offline, but I’m long Frontline. I would not wanna be long Euronav. It’s the one, you know, M&A arb merger and arbitration arb where you, like, go along the cheap one and short the other one and kind of play that arbitrage. This is the one situation where I would not wanna do that. I would just go along Frontline and stay the hell away from Euronav.
Daniel Snyder
All right, J, so we’re about running out of time here. I wanna grab one more here before we go, and I asked you this question that we got in the chat here because it’s one of the companies that you just mentioned today, and to recap for everybody just so that you remember, we were talking about Star Bulk, which is ticker SBLK, Scorpio Tanks, ticker STNG, and Danaos Corp, ticker DAC, so this question is about Star Bulk, and it was asked by Mark. Says, “Does Star Bulk have the capital “to keep its dividend?” What are your thoughts on that?
J Mintzmyer
So it’s a good question ’cause if you’re buying Star Bulk for a dividend, you definitely wanna know the answer. Star Bulk has a variable dividend policy of 100% free cash flow, so it has nothing to do with them having the capital. It has to do with them having the right rates in the market, so Mark, the rates have been down for the last quarter, so the dividend is gonna go down. It’s a variable dividend, so let me pull up the BDI chart here. Hopefully, this is helpful real quick right here, so when the rates are up here, dividends are big; the rates are down here, dividends are low, and it’s a lagging effect, right? Because, you know, this is, say, this is, like, September. That’s a voyage that starts in October and runs through December. That would be quarter four. That would be paid in February, so imagine, like, a three- to four-month lag on this chart, so this means, like, Q2, Q3’s gonna be damn good, right? This is Q3 rates, but that’s maybe like a Q4, Q1 dividend, so Mark, the dividend’s gonna go down just because of the the market rate, but if the market goes up back here, the dividend’s gonna go up, so it’s just very variable, so big dividends when the market’s strong; smaller dividends when the market is weak. If you wanna fixed dividend, Star Bulk, it’s not really a play for you.
Daniel Snyder
Makes a lot of sense. Thanks for clarifying on that, and just one last time, J, thank you so much for your time today. It’s been an incredible hour. Love everything that you brought, all the data and just walking us through these three different sectors of the shipping industry. I wanna remind everyone, as well, that you are offering the free two-week trial right now. That does include all the research, the chat functionality, everything that you’re talking about. If you didn’t get your question answered today, you can jump over into the service and get your question answered there by J and his team. J, I’m gonna leave, you know, take 30 seconds. Any last words you wanna say before we get on outta here?
J Mintzmyer
Daniel, you’ve done a fantastic job running this thing. Everyone who attended, thank you so much for your time today. It’s always great to engage. I appreciate so much the enthusiasm and the questions that you guys brought. Yeah, like Daniel said, if you wanna learn more, two weeks free, zero obligation. You won’t hurt my feelings if you sign up and decide it’s not for you, but if you have any interest whatsoever in the sector, I encourage you. This is your opportunity. Check it out now. Thanks, guys.
Daniel Snyder
Some massive alpha over there, as we’ve been talking about, dropping the numbers earlier in the presentation, so everyone, thanks for taking the time hanging out with us. J, I hope you see all these people right here in the chat. I mean, we’ve got everybody saying thank you to you. Very enlightening. Great presentation. We love it when you come on here and just share your knowledge and this alpha that you provide, so with that being said, everyone have a great rest of the day. Be careful out in those markets, and we’ll see you again here in the future. Take care.
Be the first to comment