We know the world is in the midst of a historic pandemic. It’s been just four months since the disease was discovered in China, but it has spread rapidly. Just a month ago, there were 1 million cases. Today, there are more than 3 million.
And it’s no big surprise this is throwing off several industries, from consumer goods to oil. The global transportation system is also in a state of chaos.
Still, even during a pandemic, resources need to travel. And there are some diamonds in the dustbin that could be represent serious opportunities for investors.
Hundreds of ship sailings have been cancelled around the world as global trade falls off a cliff.
“We could see operating losses of some $20-23 billion”, says analyst Alan Murphy of Sea-Intelligence. “That would wipe out the shipping firms’ last eight years’ worth of profits.”
Murphy says the pandemic will trigger questions about world trade — and globalization in general. “A lot of protectionist arguments are going to be made against outsourcing.”
But there’s one exception to all this gloom and doom: oil tankers.
Nick Chubb of Thetius explains: “There are ships that are being chartered now for $230,000 a day as offshore floating storage for when the oil prices recover. It’s almost a tale of two industries.”
Oil futures went NEGATIVE last week, dropping as low as MINUS $40.32 a barrel as long positions were caught with their pants down:
“What? We’re supposed to take DELIVERY?”
The glut of cheap oil is overflowing the ability to store it in the traditional way. And given the impact of COVID-19 on the world economy, these tankers could be storing crude for a long time.
Monaco-based Scorpio Tankers Inc. (NYSE: STNG) and Belgian operator Euronav (NYSE: EURN) are the main plays here and they’re soaring. They’re up 41% and 17% over the past month, respectively.
Railroads are under the weather too.
The Association of American Railroads (AAR) reports total freight on American railways tumbled 23.8% year-over-year for the week ending April 11.
Coal transport was particularly hard hit, plunging 36%. And the floor dropped out of motor vehicles and parts … by a stunning 88%.
But there’s a silver lining, as AAR Senior Vice President John Gray points out …
Railroads are continuing to move massive amounts of freight, including countless essential chemicals, food products and manufactured goods that we need in good times and bad.
As of Friday, Union Pacific (NYSE: UNP) stock is up 42% from its March 23 low, and CSX Corporation (NASDAQ: CSX) is up 43%. Both have solidly outperformed the iShares Transportation ETF (IYT), which is only 24% higher.
Road to Opportunity
Meanwhile, America’s truck drivers are seen as war heroes.
At the White House on April 16, President Trump called them “foot soldiers … carrying us to victory.”
But it isn’t just the president that’s appreciative.
Denver-based freight driver Nate McCarty shares two stories from the road …
We all have been just getting a lot more kudos from the motoring public. People holding up signs … waving to us.” One driver said that he was at one of the stores and he had a gentleman come up to him and asked if he could pray for him. It’s really heartwarming …
McCarty noted higher payloads for grocery stores and Amazon warehouses. In fact, shipments to grocery stores and discount retailers surged a whopping 82% compared to a year ago.
And we can see billboards popping up thanking truckers for their service, just like this one.
Here are two trucking companies operating on solid ground …
Old Dominion Freight Line (NASDAQ: ODFL) opened shop back in 1934 with only one truck running a 94-mile route in Virginia. Now, the company is one of the top players.
Morgan Stanley analyst Ravi Shanker states, “We see ODFL as a best-in-class trucking asset and the most defensive company within Freight Transportation … We also note that ODFL arguably has more room to cut costs in a down cycle.”
J.B. Hunt Transport Services (NASDAQ: JBHT) is another company you should be looking at. It’s the king of “intermodal shipping” … transporting goods across different modes. In this case, taking containers from railcars and the moving them onto trucks.
And it seems courier stocks could be getting a break too.
As the coronavirus pandemic drives up online orders of essentials, e-commerce giant Amazon is putting its Amazon Shipping pilot program on hold. That could boost UPS (NYSE: UPS) and FedEx (NYSE: FDX) quite nicely.
As your state slowly begins to open up — Wear masks! They help! — some of these names could put some eggs back into your nest.
All the best,